Explain the basis of classifying taxes into direct and indirect tax. Give examples
Direct tax refers to those taxes which are directly imposed individuals and companies and are paid directly by them to the government. For example, income tax- the tax burden cannot be shifted to any other person, wealth tax, corporate tax etc.
Indirect tax refers to those taxes which are imposed on an individual but are paid by another person either partly or wholly. Hence, the impact and incidence of taxes are on different persons. Examples of indirect taxes are custom duties, excise dutiesetc. Indirect taxes are those taxes in which the tax burden can be shifted to another person. For example, the sales tax where the tax burden is shifted by the seller of the commodity to the buyer. Example: Direct tax- income tax and indirect tax- sales tax
