The important merit of indirect taxes is that they can reach the masses it reaches the poor classes. Indirect tax like a commodity tax is purchased by the rich class and poor class. Poor people purchase small amount and thus make small contribution to the total pool of indirect taxes.

So every person rich or poor contribute something to the public exchequer for maintenance of the state. It is only indirect taxes that bring all people with-in the tax net.

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2. Convenient:

Indirect taxes satisfy the canon of convenience. Indirect taxes are collected along with the prices of commodities purchased. No statement of account is to be submitted by the tax payers.

Tax payments are with small amounts and not as a lump sum annual tax. It is also convenient for the government because the government collects them not from the innumerable buyers but from the businessmen and producers.

3. Less Unpopular:

Compared to direct taxes indirect taxes are less unpopular. Indirect taxes are included in the price of the commodity. The tax payer does not feel the burden of the tax.

4. Difficult to Evade:

Tax evasion takes place in case of direct taxes. But it is difficult to evade the indirect taxes. As the tax is included in the prices of commodities, the buyers cannot evade it. Evasion is possible only when the buyers go without purchasing the commodities.

Further, to evade these taxes are either smuggling of goods or unlicensed and unaccounted production and sale. These activities are illegal. It can be stopped by efficient enforcement machinery of the government. So the only way to avoid a commodity tax is to go without consumption of that commodity and infect, it is difficult.

5. Canon of Productivity:

In India, the share of indirect taxes to the total tax pool is much higher than that of the share of direct taxes. In case of need, the govt. can collect more taxes by imposing higher rates of taxation on commodities for which demand is more.

6. Equity:

Indirect taxes bring people of all sections of the society within the tax net. Usually,’ in countries like India, government can impose higher rates of tax on the consumption of luxury and make the rich people to pay more taxes and at the same time, mass consumer goods especially commodities of common consumption (essential commodities) may be exempted or lightly taxed. So equity element can be taken care of in the system of indirect taxation.

7. No Harmful Effect:

Indirect taxes are collected from a wide range of commodities. As we know, direct taxes have adverse effect on work effort and savings. As indirect taxes cover over wide areas of production and sale, large amount of revenue can be collected without any harmful effects on the tax payers.

8. Regulates Harmful Consumption:

Consumption of wine, tobacco and even cigarettes are treated as detrimental to health. Government can increase tax rates for such commodities and as a result of which prices of such articles will increase and in turn it will discourage people to consume such commodities. This will improve social welfare.

9. Economy in Collection:

In direct taxes are easy to collect. Collection takes place automatically with the sale and purchase of commodities. So cost of collection (or establishment cost) of raising indirect taxes can be kept to the minimum.

10. Flexibility:

Indirect taxes are highly flexible. If the public authority and larger resources then large number of commodities can be brought within the coverage of indirect taxes. In case of indirect taxes, the tax rates can easily be changed depending upon the need of the situations.

11. Saving and Capital formation:

Indirect taxes directly increase the commodity prices. So people consume less as a result of rise in commodity prices. When people consume less, private saving increases. Economic development of a country like India depends on capital accumulation. Indirect taxes help increase both private and public savings.

12. Reallocation of Resources:

Indirect tax is an instrument of diversion of economic resources. Impositions of heavy taxes on non-essential and luxury items reduce the production of such items. So this will release resources for the production of goods of common interest.

This enables productive use of scarce resources. The released resources are diverted for the production of essential commodities which are lightly taxed. So imposition of indirect taxes results in reallocation of resources in the desired direction.

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