Advantages and disadvantages of direct taxes

Advantages (Merits) of Direct taxes

1. They are economical that is they are cheap to collect from tax payers for example  pay as  you earn  paid  on salaries  of civil
2. They are easy and simple to understand and administer. Therefore they fulfill the principle of simplicity.
3. They are convenient to the tax payer. For example pay as you earn is paid at the end of the month when the tax payer is paid the
4. They are A small increase in the tax rate yields much tax revenue .They also change with the changes in tax base.
5. They are based on the principle of certainty. That is, the time of payment and the amount to be paid are all clear to both the tax payer and the tax collector in
6. They fulfill the principle of equity. This is because they are progressive in nature. This promotes equitable distribution of income in the
7. Their tax revenue is easy to estimate because they are fixed for a given period. This facilitates proper budgeting and planning.
8. They can be used to control inflation. This is done by taxing heavily the disposable incomes of the tax payers so as to reduce aggregate
9. They are used to cultivate a sense of civic responsibility among the The citizens get concerned about the affairs of the state and how their taxes are used in the provision of social services.

Disadvantages (Demerits) of Direct taxes

1. High direct taxes discourage savings, investment and consumption. This leads to low production hence unemployment in the
2. They are easy to avoid and This leads to loss of government revenue.
3. It is difficult to determine the tax payer’s taxable capacity under direct taxes. This is because individuals have different sources of income which may not be known by the tax
4. The cost of collection is high especially in rural areas where people are scattered and where there is presence of poor ·
5. They are inconvenient to the tax payer because they are paid in lump sum and in advance. This increases the chances of tax evasion.
6. High direct taxes increase the cost of production. The high direct taxes force workers to demand for higher wages forces the producers to increase in the prices of commodities hence cost push inflation.
7. High direct taxes reduce work effort for the workers. They reduce the take home pay for the workers and this reduces their efficiency. This not only results into low profits for firms but also leads to loss of government tax revenue.
8. Direct taxes have limited coverage. This is because they do not include all income groups. For example the young children, retired workers, tourists etc.
9. Direct taxes have a direct impact on the tax payers. This is because they are paid directly out of their incomes. This makes them unpopular which may lead to political sabotage in the country.
10. They are associated with a high degree of corruption, embezzlement and sectarianism during tax assessment and collection.