Taxation Matters – Direct & Indirect

Taxation is the process by which a government collects money from individuals and organizations to finance public services and infrastructure. There are two main types of taxes: direct taxes and indirect taxes.

Direct Taxes: Direct taxes are taxes that are levied directly on the income or wealth of individuals and organizations. Examples of direct taxes include income tax, corporate tax, wealth tax, and property tax. The tax liability in direct taxes falls directly on the taxpayer, and it cannot be passed on to others. Direct taxes are progressive in nature, meaning that the tax rate increases with the increase in income or wealth of the taxpayer.

Indirect Taxes: Indirect taxes are taxes that are levied on goods and services at the time of sale or purchase. Examples of indirect taxes include value-added tax (VAT), goods and services tax (GST), excise duty, and customs duty. Indirect taxes are passed on to the consumer in the form of higher prices, and the tax liability ultimately falls on the end consumer. Indirect taxes are regressive in nature, meaning that they tend to have a greater impact on lower-income groups.

In summary, direct taxes are levied on the income or wealth of individuals and organizations, while indirect taxes are levied on goods and services at the time of sale or purchase. Both types of taxes are essential sources of revenue for governments, and they are used to fund public services and infrastructure.