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State and explain the merits of indirect taxes.

      

State and explain the merits of indirect taxes.

  

Answers

Judy
1. Convenient. Indirect taxes are less inconvenient and less burdensome. They are paid only when a commodity or a service is bought. So they are paid in small amounts rather than in lump sum. Since these taxes are included in the prices of commodities, buyers do not feel the burden of these taxes. Such taxes are like sugar-coated pills.
2. Wide Coverage. These taxes reach the pockets of all income groups low, middle and high. They are levied on necessaries, comforts, and luxuries. Thus they have a wide coverage, and every consumer pays to the state exchequer according to his ability to pay. Thus they are equitable.
3. Elastic. Indirect taxes are also elastic in nature. The government can reduce or increase the rates of, say, excise duties, or custom duties according to its requirements. But care should be taken in not imposing high rates on necessaries which are mostly consumed by the poor.
4. Economical. These taxes are economical in the sense that they involve little cost of collection because the producers and sellers themselves deposit them with the government.
5. Diversity. Indirect taxes satisfy the canon of diversity. They can be levied on a variety of commodities and services. So the government can be sure of continuous and sufficient revenue, even if it is required to reduce the rates of taxes on certain commodities due to the fall in their demand.
6. Less Evasion. There is less possibility of evasion in the case of indirect taxes because they are included in the prices of commodities. As these taxes are shift able on the ultimate consumers, the producers, the wholesalers, and the retailers do not mind paying them. The consumers can evade them only if they decide not to buy the taxed commodities. However, these taxes are generally evaded by producers when they sell their products to the wholesalers and the retailers without entering the goods in their stocks and without issuing bill cash receipt for the same.
7. Check the Consumption of Harmful Goods. Indirect taxes have the great merit of checking the consumption of harmful goods like wine, cigarettes and other intoxicants. The state levies heavy duties on such articles of consumption which are injurious to health and efficiency of the people. As a result, their prices rise and their consumption is reduced. The state also earns substantial revenue.
8. Powerful Tool of Economic Policies. Indirect taxes can be used as a powerful tool for implementing economic policies by the government. If the government wants to protect domestic industries from foreign competition, it can levy heavy import duties. This will help develop domestic industries. If the government wants to encourage one industry on priority basis, it may not levy any taxes on its products but continue the taxes imposed on other industries. The government may do so in order to encourage a particular technology or employment in a particular industry.
Judiesiz answered the question on July 7, 2018 at 00:20

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