Merits and demerits of Indirect Tax

Merits and demerits of Indirect Tax

Tags:      Gig Economy     Economy     WTO     WTO Public Stockholding     MSP     Economic Growth     Masala Bond     Environmental Performance Index     Forecast of Economic Growth     Functions of the Finance Commission

Advantages of indirect taxes

Everybody can contribute to indirect taxes. In contrast to income taxes, which must be paid by people in particular income brackets but not others, indirect taxes must be paid by everyone who buys the product. Tourists and people of lower socioeconomic status who are not employed in India must also pay it because they will, at some point, purchase goods.

The charging of indirect taxes is very convenient - Indirect taxes are very convenient. First, consumers don't feel weighed down by paying such low taxes because they can be very low. Second, these indirect taxes are referred to as being "hidden in the price," implying that the consumer is only actually aware of the commodity's price.

It is impossible to avoid indirect taxes because they are included in the price of the product. Thus, the tax will be paid by anyone who purchases the product.

Indirect taxes are distributed over a broad spectrum. Excessive taxation in any one aspect of a product or service will have a significant impact on the consumer and be burdensome. Because they are distributed over a wider range of goods in smaller amounts, indirect taxes can be advantageous in this regard.

Disadvantages of Indirect Tax

Indirect taxation has the potential to be regressive because it is the same for the rich and the poor, making it unfair to the poor. Anyone who makes a purchase is subject to indirect tax, and while the wealthy can afford to pay the tax, the poor will be subject to the same amount. As a result, indirect taxes might be regarded as regressive.

The price of goods goes up because of indirect taxes. Sellers can't always figure out and collect the exact amount of tax that applies to all goods they sell. Because they want to make sure that every customer has paid the indirect tax, they deliberately charge more than the tax. However, this all adds up and raises the cost of commodities.

Because millions of people are unaware that they are paying a tax because it is included in the price, indirect taxes do not raise civic consciousness.

Conclusion - As a result, indirect taxes have both benefits and drawbacks, but no one can dispute their significance in generating revenue. Indirect taxes allow the poor to make a small contribution, whereas direct taxes can be collected from the wealthy. As a result, each has its own place in the economy.