TYPES OF TAX

There are two types of tax namely:

DIRECT TAX

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

1. They are usually progressive and equitably 
2. It is an effective instrument of income re-distribution 
3. It is easily collected.
4. The payers pay according to their income 
5. It is used to fight inflationary period.

DISADVANTAGES OF DIRECT TAXES

1. Collection for non-salary earners is very costly.
2. It reduces the purchasing power of the workers.
3. It discourages hard work.
4. Corruption exists among the collectors which sometimes lead to embezzlement of the proceeds.

INDIRECT TAXES

These are taxes levied on commodities and services. They include

1. Import Duties – taxes imposed on imported goods E. Electronics.
2. Export Duties – Taxes imposed on goods exported outside the country E.g. cocoa. Oil and palm produce.
3. Excise Duties – Taxes imposed on locally manufactured goods E.g. cigarette and soap.
4. Purchase Tax – Taxes imposed on the consumption of selected consumer durables such as cars and TV sets.

ADVANTAGES OF INDIRECT TAXES

1. It yields revenue quickly.
2. It is easy to collect
3. It is not easily evaded. 5.
4. 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.
5. It prevents dumping of goods in the country. It hinders production of harmful goods. It protects young and growing industries.
6. It also checks the consumption of harmful goods or goods that are in short supply.

 

DISADVANTAGES OF INDIRECT TAXES

1. Indirect taxes are regressive in nature and not progressive as direct tax.
2. It may lead to inflation 
3. It strikes political upheavals.
4. It encourages smuggling due to high cost of import and export duties.
5. It encourages double or multiple payments of taxes by producers and consumers.