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1. Unpopular. Direct taxes pinch the taxpayers because they have to pay them directly out of their incomes or salaries. They are, therefore, unpopular.
2. Inconvenient. These taxes are inconvenient in nature because traders, businessmen, producers, etc. have to comply with a number of formalities relating to their sources of income and expenditure incurred in earning that income. Often the details are incomplete and the various Sections of the Acts so complicated that the taxpayers have to take the help of income tax experts by making them payments. Moreover, these taxes are payable in advance and in lump sum, except in the case of salaried persons. Hence they are inconvenient.
3. Arbitrary. Direct taxes possess an element of arbitrariness in them. They leave much to the discretion of the taxation authorities in fixing the rates of taxation and in interpreting them.
4. Evasion. Since direct taxes pinch every taxpayer, he tries to evade them by filling wrong returns and even takes the help of income tax experts: Thus such taxes cultivate dishonesty and there is loss of revenue to the state.
5. Not Imposed on All. Direct taxes are not imposed on all income groups. Low income groups do not come under the purview of these taxes. Such groups, therefore, do not contribute anything to the state exchequer through direct taxation.
6. Discourage Saving and Investment. Direct taxes adversely affect saving and investment. When people know that with the increase in their incomes and wealth, they will have to pay a large portion in the-form of taxes, they are reluctant to save and invest more. This adversely affects the will to work, save and invest.
7. Discourage Production. Corporation taxes discourage those industries and firms which produce essential goods.
Judiesiz answered the question on July 7, 2018 at 00:15
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