Direct Taxes Vs. Indirect Taxes

Difference Between Direct Taxes And Indirect Taxes

 

Direct taxes such as income tax and residence taxes are paid and borne by the same person. The “liable” is the one who pays the amount of tax, is then also the taxpayer, that is to say who actually bears the tax. The tax authorities may establish a list of taxpayers who are paying the taxes..

However, with indirect taxes, as the value added tax (VAT), customs duties or taxes on fuel, the debtor is separate from the taxpayer. Indirect taxes are paid by companies or persons from whom, but passed on the sale price of a product, so they are supported by another person, the taxpayer. Thus, VAT is paid by companies accountable, but fully paid by final consumers, taxpayers, unknown to the tax authorities.

The distinction between direct and indirect taxes is not as clear as it seems. Thus, the tax on corporate profits, which is considered a direct tax, is partly reflected in the selling prices of companies.

Direct taxes are generally regarded as more equitable because they take into account the personal circumstances of taxpayers. Indirect taxes are easier to collect because the number of taxpayers is less. Indirect taxes constitute more than half of tax revenues collected in the country. They are less sensitive to economic conditions and relatively “painless” for the people who are taxpayers and who are not aware of the taxes they pay by making their purchases. As a result, governments often prefer to increase indirect taxes and lower the direct taxes.

Direct taxes such as income tax and residence taxes are paid and borne by the same person. The “liable” is the one who pays the amount of tax, is then also the taxpayer, that is to say who actually bears the tax. The tax authorities may establish a list of taxpayers who are paying the taxes..

However, with indirect taxes, as the value added tax (VAT), customs duties or taxes on fuel, the debtor is separate from the taxpayer. Indirect taxes are paid by companies or persons from whom, but passed on the sale price of a product, so they are supported by another person, the taxpayer. Thus, VAT is paid by companies accountable, but fully paid by final consumers, taxpayers, unknown to the tax authorities.

The distinction between direct and indirect taxes is not as clear as it seems. Thus, the tax on corporate profits, which is considered a direct tax, is partly reflected in the selling prices of companies.

Direct taxes are generally regarded as more equitable because they take into account the personal circumstances of taxpayers. Indirect taxes are easier to collect because the number of taxpayers is less. Indirect taxes constitute more than half of tax revenues collected in the country. They are less sensitive to economic conditions and relatively “painless” for the people who are taxpayers and who are not aware of the taxes they pay by making their purchases. As a result, governments often prefer to increase indirect taxes and lower the direct taxes.

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