Business

Difference between direct tax and indirect tax

Main difference

The government imposes taxes to generate income; In exchange for these taxes, the government offers different services to the citizen of the country without any discrimination. In other words, we can say that the tax money collected drives the national economy and, moreover, is used for the benefit of all people. The tax by the government can be mainly divided into two types on the basis of the involvement with the people. One is called direct tax and the other is called indirect tax. The tax on profits and earnings of individuals is called direct tax, while the tax on goods, services and products is known as indirect tax. Direct tax is applied to those who obtain or manage to obtain more profit than the specified value ; it is never applicable to the poor or unemployed. On the other hand, indirect tax applies to every purchaser or purchaser in the situation as it is levied by the government on goods, services, and products.

Comparison chart

direct tax indirect tax
Definition The tax levied on the profits and benefits of individuals is called direct tax. The tax levied on goods, services and products is known as indirect tax.
specific group It applies to the specific group, those who earn a lot of money, not those who earn less. To pay for everyone who buys that product or service.
Types Wealth tax, income tax, property tax, corporation tax, import and export duties are some of the types of direct taxes. Central Sales Tax, VAT (Value Added Tax), Service Tax, STT (Security Transaction Tax), Excise Tax, Customs Duty.
Tax evasion Possible, if one hides his earnings or earnings from the administration. It is not possible since you have to pay at the time of purchase directly.
What is direct tax?

The direct tax is applied to those who obtain or manage to obtain more profits than the specified minimum value. It only classifies the specific group that manages to have an annual income or benefit greater than the defined minimum value. It is worth mentioning that these taxes do not apply to low-income and unemployed people. Each country predefines the volume of taxes in correspondence with profits and earnings. The volume of taxes directly depends on the profit; As earnings increase, the tax rate rises directly. The value of the minimum profit on which the tax will be applied is decided by the country’s policy and the demand to generate income through it to cover public spending. At the same time, unemployment rates, inflation, Poverty rates are closely scrutinized before arriving at the minimum earnings on which the tax will be applied. Those who are in government jobs get automatic tax deduction from their salaries, although those who are doing jobs or others are asked by the tax organizations to pay the taxes as it is an obligation to make their nation stand out.

What is indirect tax?

The indirect tax applies to people regardless of their earnings or income; since this tax is applied to goods, services and products. The low-income or high-income buyer would have to pay the same amount for that product or service. The best part about this type of tax is that it applies to the general population, not a specific group. The other thing that makes it more important is that in this case tax evasion is not possible, since you have to pay for the service or the goods, since the tax is already levied. The government imposes taxes after evaluating the use of that product, the goods that are necessities have the minimum tax and, on the other hand, the products that belong to the luxuries of life have more taxes. For example, the telecommunications services that they offer us have more taxes than those of daily life. Central Sales Tax, VAT (Value Added Tax), Service Tax, STT (Security Transaction Tax), Excise Tax and Customs Duty are some of the indirect taxes that the government levies on the different products and services.

Direct tax versus indirect tax
  • The tax on profits and earnings of individuals is called direct tax, while the tax on goods, services and products is known as indirect tax.
  • The direct tax falls on the specific group that manages to have an income or annual benefit greater than the defined minimum value. On the other hand, the buyer with low or high income would have to pay the same amount of taxes for that specific service or product.
  • Wealth tax, income tax, property tax, corporation tax, import and export duties are some of the types of direct taxes. On the other hand, Central Sales Tax, VAT (Value Added Tax), Service Tax, STT (Security Transaction Tax), Excise Duties and Customs Duties are some of the types of taxes. indirect taxes.
  • Tax evasion is an indirect tax possible after one successfully hides their income and earnings. Contrary to this, tax evasion cannot be done in the case of indirect taxes as one has to pay for the service or goods as the tax is already applied to them.

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