There are two types of tax namely:
Taxes levied on incomes and properties of individuals. Examples of direct taxes are:
- Personal Income Tax – Tax levied on the total income earned by each individual usually in a year. It is facilitated through the PAYEE system.
- Company Income Tax – Tax levied on the “net profits” of companies.
- Capital Gain Tax – Tax imposed on properties (say estate) of a deceased person. It is a tax levied on properties inherited from a deceased person.
ADVANTAGES OF DIRECT TAXES
- They are usually progressive and equitably
- It is an effective instrument of income re-distribution
- It is easily collected.
- The payers pay according to their income
- It is used to fight inflationary period.
DISADVANTAGES OF DIRECT TAXES
- Collection for non-salary earners is very costly.
- It reduces the purchasing power of the workers.
- It discourages hard work.
- Corruption exists among the collectors which sometimes lead to embezzlement of the proceeds.
These are taxes levied on commodities and services. They include
- Import Duties – taxes imposed on imported goods E. Electronics.
- Export Duties – Taxes imposed on goods exported outside the country E.g. cocoa. Oil and palm produce.
- Excise Duties – Taxes imposed on locally manufactured goods E.g. cigarette and soap.
- Purchase Tax – Taxes imposed on the consumption of selected consumer durables such as cars and TV sets.
ADVANTAGES OF INDIRECT TAXES
- It yields revenue quickly.
- It is easy to collect
- It is not easily evaded. 5.
- It causes less friction and uproar between the government and the taxpayers. This is because the payers d not know the amount of tax levied on prices of goods they buy.
- It prevents dumping of goods in the country. It hinders production of harmful goods. It protects young and growing industries.
- It also checks the consumption of harmful goods or goods that are in short supply.
DISADVANTAGES OF INDIRECT TAXES
- Indirect taxes are regressive in nature and not progressive as direct tax.
- It may lead to inflation
- It strikes political upheavals.
- It encourages smuggling due to high cost of import and export duties.
- It encourages double or multiple payments of taxes by producers and consumers.