How to Determine Whether a Tax is Direct or Indirect?
- In the case of direct tax, the burden can not be shifted to another. For example, income tax is a direct tax since it has an impact and incidence on the same person.
- In the case of indirect tax, the burden can be shifted to another. For example, Goods and Service Tax is an indirect tax since it has an impact and incidence on different persons.
Question:
Classify the following items as Direct and Indirect Tax:
- Capital Gains Tax
- Goods and Services Tax
- Corporation tax
- Income Tax
Answer:
1. Capital Gains Tax: It is a direct tax as the impact and incidence of the tax lie on the same person.
2. Goods and Services Tax: It is an indirect tax as the impact and incidence of the tax lie on different persons. Hence, the burden of the tax can be shifted.
3. Corporation Tax: It is a direct tax as the impact and incidence of the tax lie on the same person.
4. Income Tax: It is a direct tax as the impact and incidence of the tax lie on the same person.
Difference between Direct and Indirect Tax
Direct and Indirect Tax are two types of taxes imposed on the property and income of individuals and companies, which is paid by them directly and indirectly to the government respectively.
Table of Content
- What is Direct Tax?
- What is Indirect Tax?
- Difference between Direct Tax and Indirect Tax
- How to Determine Whether a Tax is Direct or Indirect?
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