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Benefits of Indirect Tax
Benefits of Indirect Tax
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Before we look at the benefits, it is pertinent to understand the indirect tax definition . so that its meaning is clear to everyone. In simple terms, it is a type of tax that can be passed on to another entity or individual. This form of tax is usually imposed on manufacturers or suppliers who pass it on to the final consumer and the amount is finally realised by the government. Thus, the burden of tax payment in this form is on the end consumer as they are responsible for buying the products. Unlike direct taxes, indirect tax is levied on materialistic goods.
The main benefit of indirect tax pertains to its convenience as taxpayers are not unnecessarily burdened by this tax system as the tax is paid only at the time of buying a commodity or service. Additionally, it is convenient for state authorities to levy the tax as it is collected directly at the stores or factories thereby saving time and effort. Thus, it is easy to collect as compared to direct taxes. Moreover, every citizen pays indirect tax irrespective of income and therefore everyone contributes towards the economy. Also, indirect tax is directly related to the price of a product or service. Thus, the basic necessities have a lower tax rate while luxury items are charged at higher rates thus ensuring equitable contribution.
The indirect tax features are such that a manufacturer or service provider pays to the government and the liability is transferred to the consumer. Initially, this type of tax was regressive in nature but the implementation of Goods and Services Tax (GST) has made them fairly progressive. They are also adequately growth-oriented because this type of tax encourages consumers towards saving and investments. It is also very difficult to evade indirect taxes as they are implemented straightaway through products and services.
The indirect tax payment varies from region to region and it is also subject to change depending on the prevailing economic conditions. This type of tax is levied by both the central and state governments and every state has its Value-Added Tax (VAT) which is in force in addition to the central taxes. However, with the introduction of GST, some state-level taxes like purchase tax, octroi and entry tax, entertainment tax, etc. have been abolished in many states.