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What is Direct Tax and Indirect Tax?

by Kanne

Direct tax and indirect tax are two forms of taxes. They are charged on goods and services. There are many types of indirect taxes. Examples include corporate income tax, sales tax, and capital gains tax. These are levied on individuals and businesses.

Indirect taxes are levied on the goods and services that are purchased, sold, or delivered. The taxes are added to the price of a good, which means that everyone will pay the same amount.

Businesses often charge higher prices to cover the cost of the indirect taxes. Because of this, it is difficult to avoid these taxes. However, there are ways for businesses to shift the burden of the taxes to another person or business.

There are also exemptions to indirect taxes. These help to balance out inequalities. A company may be able to accept lower profits, and then pay lower wages to the employees, to offset the indirect taxes.

Indirect taxes are regressive, which means that they are imposed on a wider group of people, and less on a higher income group. This allows the government to reduce the demand for goods and services and prevent inflation.

Both direct and indirect taxes can cause a reduction in the purchasing power of consumers. Because of this, people may not be aware of the difference between these taxes.

Direct taxes can be evaded if there is no proper collection administration. Indirect taxes are collected automatically on goods and services.

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