Distinction between Direct Taxes and Indirect Taxes is that of ‘impact’ and ‘incidence’. If impact and incidence of a tax both are on the same person, the tax is direct tax and where the impact and the incidence are on different persons, the tax can be termed as indirect tax. Here impact of tax means the liability of a person to pay the tax in the first instance and incidence means ultimate burden of the tax finally. However, The disadvantages of direct taxes are given below for your understanding.
What Are The Disadvantages Of Direct Taxes ?
There are some disadvantages of direct taxes among which the most important are enumerated as follows-
(1) Inconvenient to tax payers. Direct taxes are inconvenient and irksome to tax payers. Nobody pays tax happily. They are irksome partly because numerous accounting and other formalities are to be observed and partly because large lump sum payments have to be made. Every increase in direct taxes hurts the feelings of the tax payers.
(2) Uneconomical: Direct taxes are uneconomical in the sense that the tax authorities have to contact each and every tax payer. For this purpose, a large organization is required. The cost of collecting these taxes is much more and the net revenue income is too little.
(3) Possibility. of Tax Evasion. These taxes encourage tax evasion. Dishonest persons generally file false return of their income and wealth. Businessmen in India generally manipulate their accounts to evade tax liability. Honest persons suffer while dishonest persons enjoy. In India, problem of black money is the result of large tax evasion.
(4) Narrowness of Scope. Direct taxes are levied only on certain groups of persons. A large number of citizens are not covered under the tax net. Due to this narrowness of their scope they do not raise the civic sense in all the groups.
(5) Arbitrary: Another objection against direct taxes is that they are invariably levied arbitrarily by the government. No well-defined principles are considered while fixing the rates of taxes. This is against the spirit of social justice.
(6) Unpopular. These taxes are unpopular, partly because the tax payers are not going to be directly benefited by these taxes and partly because they irk the tax-payer.
The above mentioned disadvantages of direct taxes may vary between demography to demography and for some other factors.