Direct taxation has its fair share of advantages and disadvantages. Aside from creating more income opportunities for the people, it can also have a negative impact on the economy.
Taxes are a powerful economic tool. They can help the government control inflation, reduce inequalities, and reduce the demand for goods and services. Hence, they play a pivotal role in the nation’s overall well-being.
Indirect taxes, on the other hand, are levied on a variety of different items. These include value-added taxes, excise taxes, and sales taxes. All of these are levied on the price of goods and services. The revenue generated by these taxes is proportional to changes in the national wealth.
The most obvious benefit of direct taxation is that it generates large revenues for the government. However, it can be argued that these revenues are not equally distributed among the citizens. Rather, they are levied in a manner which makes them fall more heavily on the less well-off.
Direct taxes also serve as an anti-inflationary fiscal policy. Compared to other forms of taxation, direct taxes have the potential to mop up excess purchasing power during inflationary periods. Furthermore, because of their predictable nature, the taxpayer knows exactly how much tax he will have to pay.
In addition to providing certainty, direct taxes can also improve the civic sense of the population. Having a sense of responsibility towards your fellow citizens, in addition to ensuring that the government spends its money wisely, is the best way to administer the tiniest tax.