Explain the basis of classifying taxes into direct and indirect tax. Give two examples of each.
Solution:
Taxes are classified into direct and indirect on the basis of 'final burden'.
Direct Tax: Where final burden of tax is borne by the person on whom it is imposed is classified as Direct Tax. Example: income tax and wealth tax.
Indirect Tax: Where final burden of tax can be shifted to other persons on persons other than on whom imposed called Indirect Tax. Example: sales tax and goods and services tax.
Taxes are classified into direct and indirect on the basis of 'final burden'.
Direct Tax: Where final burden of tax is borne by the person on whom it is imposed is classified as Direct Tax. Example: income tax and wealth tax.
Indirect Tax: Where final burden of tax can be shifted to other persons on persons other than on whom imposed called Indirect Tax. Example: sales tax and goods and services tax.