Difference Between Direct And Indirect Tax
The main difference between direct tax and indirect tax can be pointed out as follows:
1. Meaning
Direct Tax: Monetary charge imposed directly on citizen's wealth and income.
Indirect Tax: Monetary charge levied to the consumers while purchasing goods and services.
2. Nature
Direct Tax: It is progressive in nature. It means more tax for more income and wealth.
Indirect Tax: It is regressive in nature because all people (both rich and poor) should pay equal tax.
3. Shifting Of Burden
Direct Tax: Tax burden cannot be shifted to another person.
Indirect Tax: Tax burden can be shifted partially or fully to others.
4. Inflationary
Direct Tax: It is anti-inflationary and helps to control inflation.
Indirect Tax: It is inflationary and promotes inflation if tax rate is increased.
5. Tax Evasion
Direct Tax: There is high possibility of tax evasion or avoidance of tax
Indirect Tax: Very difficult to avoid tax because tax is attached in the product price.
6. Certainty
Direct Tax: There is certainty in direct tax. Tax payer knows the tax amount to be paid and time of payment.
Indirect Tax: The amount of tax is uncertain.
7. Equality
Direct Tax: Amount of tax differs from people to people according to their income.
Indirect Tax: Tax amount is equal for all.
Also Read:
Also Read:
8. Cost And Time Involved
Direct Tax: It involves high cost, time and labor to collect direct tax. So, it is inconvenient than indirect tax.
Indirect Tax: It involves less cost and time while comparing to direct tax.
9. Examples
Direct Tax: wealth tax, income tax, property tax etc. are some examples of direct tax
Indirect Tax: sales tax, custom duty, service tax etc. are some examples of indirect tax.
Direct Tax Vs Indirect Tax (Comparison Chart)
I hope this post is helpful to understand the difference between direct and indirect taxes and to make comparison between them.
Direct Tax Vs Indirect Tax (Comparison Chart)
Basis For Difference
|
Direct Tax
|
Indirect Tax
|
Introduction
|
Type of tax that is levied directly on people income, wealth and properties.
|
Type of tax that is levied on consumer goods and services
|
Nature
|
Progressive
|
Regressive
|
Shifting Of Tax Burden
|
Impossible
|
Possible
|
Inflationary
|
No
|
Yes
|
Chance Of Tax Evasion
|
High
|
Less
|
Certainty
|
Yes
|
No
|
Equality
|
No
|
Yes
|
Time And Cost Needed
|
More
|
Less
|
Examples
|
Income tax, wealth tax, property tax etc.
|
Service tax, sales tax, custom duty etc.
|
I hope this post is helpful to understand the difference between direct and indirect taxes and to make comparison between them.
