Direct Tax vs Indirect Tax
Taxation ensures that government collects money to fund all its activities. Thus, there are different types of tax that can be levied to citizens of a particular country namely direct and indirect tax. However, it will be vital to note that this is not the only types of tax that government levies to its citizens.
Advantages of Direct Tax
The advantages of the Direct form of Tax as compared to the Indirect form of Tax are:
1- It’s a tax that is only leveled to the unemployed
A direct tax is levied to employed citizens by the government at the end of a given period of time. Thus it’s a tax that is charged on income of individuals and not on the price of commodities. This ensures that any government action to either increase the amount of direct tax does not lead to inflation which has an effect on economic growth and development.
2- It’s easy to administer
A direct tax is easily administered when compared to indirect tax. This is a tax that is charged at the end of the month and the government can easily monitor the tax through pay as you earn from. The government can also collect the amount of each and every payer at the end of a given period of time not to say that it can still predict the amount to be raised yearly.
3- It may lead to the redistribution of wealth in an economy
Remember that direct tax is charged at the end of each month depending on different factors. First individuals that earn huge amount of money are heavily taxed and those that earn less are minimally tasked. Money raised from the direct tax can be used to finance projects that may be used by the poor communities. By doing so, a country can reduce the gap between the rich and the poor.
4- It encourages public participation and personal auditing of government projects
There is a pinch that is usually accompanied by the paying of direct tax, unlike indirect tax whereby some individuals may not be even aware of the Value-added Tax they are paying on a commodity. This pinch encourages the need to scrutinize government projects, follow through proposed governments projects and air about areas that need improvement in the government public sector. Thus direct tax creates a system of inquiry, critical thinking and the development of rational judgments between government and its citizens. This improves public participation in government project and enhances patriotism besides fostering democracy and nationalism in different countries
5- Direct tax discourages imported inflation
The tax is just charged on income of individuals and thus it has no direct effect in increasing imported inflation in a country. At times, the indirect tax may discourage local production and encourage suppliers, retailers, and intermediaries to import products into a country. The imported products may creep in with imported inflation which is contrary to the direct tax.
“In conclusion, there are a lot of benefits that are derived from a country banking on a direct system of taxation. However, a government is required to effectively administer the direct tax for maximum client benefit.”