Advantages of Indirect Taxes
1. Convenient: Indirect taxes are imposed on production, sale and movements
of goods and services. These are imposed on manufacturers, sellers and traders,
but their burden may be shifted to consumers of goods and services who are the
final taxpayers. Such taxes, in the form of higher prices, are paid only on
purchase of a commodity or the enjoyment of a service. So taxpayers do not feel
the burden of these taxes. Besides, money burden of indirect taxes is not
completely felt since the tax amount is actually hidden in the price of the
commodity bought. They are also convenient because generally they are paid in
small amounts and at intervals and are not in one lump sum. They are convenient
from the point of view of the government also, since the tax amount is
collected generally as a lump sum from manufacturers or traders.
2. Difficult to Evade: Indirect taxes have in-built safeguards against tax
evasion. The indirect taxes are paid by customers, and the sellers have to
collect it and remit it to the Government. In the case of many products, the
selling price is inclusive of indirect taxes. Therefore, the customer has no
option to evade the indirect taxes.
3. Wide Coverage: Unlike direct taxes, the indirect taxes have a wide coverage.
Majority of the products or services are subject to indirect taxes. The
consumers or users of such products and services have to pay them.
4. Elastic: Some
of the indirect taxes are elastic in nature. When government feels it necessary
to increase its revenues, it increases these taxes. In times of prosperity
indirect taxes produce huge revenues to the government.
5. Universality: Indirect taxes are paid by all classes of people and so they are
broad based. Poor people may be out of the net of the income tax, but they pay
indirect taxes while buying goods.
6. Influence on Pattern of Production: By imposing taxes on certain commodities or
sectors, the government can achieve better allocation of resources. For example
by imposing taxes on luxury goods and making them more expensive, government
can divert resources from these sectors to sector producing necessary goods.
7. May not affect motivation to work and save: The indirect taxes may not
affect the motivation to work and to save. Since, most of the indirect taxes
are not progressive in nature, individuals may not mind to pay them. In other
words, indirect taxes are generally regressive in nature. Therefore,
individuals would not be demotivated to work and to save, which may increase
investment.
8. Social Welfare: The indirect taxes promote social welfare. The amount collected by
way of taxes is utilized by the government for social welfare activities,
including education, health and family welfare. Secondly, very high taxes are
imposed on the consumption of harmful products such as alcoholic products,
tobacco products, and such other products. So it is not only to check their
consumption but also enables the state to collect substantial revenue in this
manner.
9. Flexibility and Buoyancy: The indirect taxes are more flexible and buoyant.
Flexibility is the ability of the tax system to generate proportionately higher
tax revenue with a change in tax base, and buoyancy is a wider concept, as it
involves the ability of the tax system to generate proportionately higher tax
revenue with a change in tax base, as well as tax rates.
Ref:
1. Balachandran V - Indirect Taxes
2. ICAI - Indirect Taxes
3. ICSI - Indirect Taxes
4. ICMAI - Indirect Taxes
5. LPU - Indirect Taxes
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