Advantages and Disadvantages of Indirect Taxes

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Advantages and disadvantages of Indirect Taxes Advantages of Indirect Taxes Indirect taxes have advantages of their own. Briefly speaking they are as under: — 1. They are the only means of reaching the poor. It is a sound principle that every indivi

Advantages and Disadvantages of Indirect Taxes

Advantages of Indirect Taxes

Indirect taxes have advantages of their own. Briefly speaking they are as under:—

1. They are the only means of reaching the poor. It is a sound principle that every individual should pay something, however little, to the State. The poor are always exempted from paying direct taxes. They can be reached only through indirect taxation.

2. They are convenient to both the tax-payer and the State. The tax-payers do not feel the burden much, partly because an indirect tax is paid in small amounts and partly because it is paid only when making purchases. But the convenience is even greater due to the fact that the tax is "price-coated". It is wrapped in price. It is like a sugar-coated quinine pill. Thus, a tobacco tax is not felt when it is included in the price of every cigarette bought. It is convenient to the State as well which can collect the tax at the ports or at the factory. A dealer collects the tax when he charges a price. He is an honorary tax collector.

3. Indirect taxes can be spread over a wide range. Very heavy direct taxation at just one point may produce harmful effects on social and economic life. As indirect taxes can be spread widely, they are more beneficial and suitable.

4. They are easy to collect. Collection takes place automatically when goods are bought and sold. They cannot be evaded, as they are a part of the price. They can be evaded only when the taxed article is not consumed, and this may not always be possible.

6.  They are very elastic in yield, if imposed on necessaries of life which have an inelastic demand. Indirect taxes on necessaries yield large revenue, because people must buy these things.

7.  When imposed on luxuries or goods consumed by the rich, they are equitable. In such cases only the well-to-do will pay the tax.

8.  They check consumption of harmful commodities. That is why tobacco, wine, beer and other intoxicants are taxed.

1 comment

peace Ayekundire
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Posted on Feb 5, 2019