A direct tax is really paid by the person or organization on which it is legally imposed. Government received direct tax from the taxpayer for different purpose like personal property tax, real property tax, income tax, or tax on assets which cannot be transferred.
Advantages and Disadvantages of Direct Tax
Direct taxes have the following advantages:
These taxes based on the canon of equity. Their burden is equitable distributed as they are progressive in nature.
Direct taxes satisfy the canon of certainty. The taxpayer is certain as to the time and manner of payment, and the amount is also certain as to the amount of money it shall receive from these taxes.
These taxes also satisfy the canon of economy. The cost of collection of direct taxes is low. In the case of income tax, it is deducted at source from the salaried persons.
Direct taxes are flexible and thus satisfy the canon elasticity. The government can increase or decreased the rate of direct taxes according to the requirements of the economy.
Direct taxes are simple and easy to understand.
These taxes do not involve general opposition from the public because they are paid by those persons or firms who come under the jurisdiction of income tax.
These taxes help decrease income and wealth discrimination because of their progressive nature. The rich taxed heavily.
These taxes inculcate civic consciousness among the tax- payers. They are conscious that they are paying taxes to the government and take interest in the activities of the state.
Disadvantages of Direct Tax
Direct taxes have the following disadvantages:
These taxes pinch the taxpayers because they have to pay them directly out of their income of salaries.
These taxes are inopportune in nature because traders, businessmen, producers, etc, have to fulfill with a number formalities relating to their sources of income and expenditure incurred in earning that income.
Direct taxes possess as element of arbitrariness in them because they leave much to the discretion of the taxation authorities.
Since direct taxes pinch every taxpayer, he tries to avoid them by filling wrong returns and yet takes the help of income tax experts.
Discourage Saving and Investment
Direct taxes adversely affect saving and investment.
Direct taxes discourage those industries and firms which produce essential goods.