Introduction:

Taxes are compulsory payment to the government without expectation of definite return or benefits to the tax payer. According to Dalton, a tax is a compulsory contribution imposed by public authority irrespective of the exact amount of service rendered to the tax payer in return and not imposed as a penalty for any legal offences. The merits and demerits of direct tax are.

Types of taxes:

Taxes have been broadly categorized into direct taxes and indirect taxes

 Dalton made a distinction between direct and indirect taxes as that, “a direct tax is really paid by a person on whom it is legally imposed while an indirect tax is imposed on one person but paid partly or wholly by another owing to a consequential charge in the terms of some contract or bargaining between them.

JS Mills says direct tax which is demanded from the person who should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at expense of another.

 Merits of direct tax:

• Economy: The administrative cost of collecting these taxes is low because the same officer who assess small income can assess large income  moreover the tax payer make the payment of their taxes direct to the state, therefore every paisa that it taken out of the pocket of the tax payer is deposited in the state treasury.
• Certainty: These taxes also satisfy that canon of certainty that tax payer is certain as to how much he is expected to pay and similarly the state is certain as to how it has to receive income from direct taxes.
• Equity: Direct taxes are considered to be just an equitable because they are generally based on the principle of progression. Therefore they fall more heavily on the rich man than on poor.
• Reduction on equalities: As the direct taxes are progressive, rich people are subjected to higher rates of taxation. These taxes help to reduce inequalities in income.
• Elasticity: The taxes also satisfy that cannot of elasticity as the government revenue may be increased simply the rising the rate of taxation moreover the income from the Direct taxes will also increase the increase in income of the people.

Demerit of Direct taxes:

• Unpopular: The direct taxes are generally not shifted and therefore they are painful to the tax payer hence such taxes are unpopular in nature and are generally opposed by the tax payer.
• Inconvenience: These taxes are also inconvenient in nature because the tax payer has to submit the statement of his total income along with a source of income from which it is derived which is generally subjected to complication more over the payment of these taxes in lump sum is not as convenient to the tax payer.
• Possibility of injustice: The practice it is difficult to assess the income of all cases accurately and Direct taxes may not fall with equal weight on the classes. More over the rates of Direct taxes are arbitrary fixed by the government and they may not be on the basis of ability to pay.
• Possibility of evasion: A direct tax is said to be a tax on honesty it is not evaded only when the tax payer is honest. Otherwise it can be evaded through fraudulent practices. the progressiveness of Direct access induces the tax payer to evade payment of taxes
• Exemption of low income group: If only direct taxation is resorted the low income group people cannot be approached by direct taxes, as the earth normally exempted from such taxes on the basis of ability or equality.

also read: explain the types of production.