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Explain the demerits of indirect taxes

      

Explain the demerits of indirect taxes.

  

Answers


Judy
1. Uncertain Revenue
The revenue from indirect taxes is uncertain because it is not possible to accurately estimate the effect of such taxes on the demand for products. If a heavy excise duty is levied on some luxury article, its price will rise. Since the demand for a luxury good is elastic, its sales may be adversely affected by a fall in demand and the state revenue may actually decline.
2. Uneconomical
These taxes are uneconomical in that the cost of collection to the state is heavy. The state has to appoint inspectors to check the accounts and stocks of producers, wholesalers, and retailers in order to find out whether they are paying taxes or not. Thus they are more expensive than direct taxes.
4. Bad Effect on Production and Employment
Sometimes, these taxes adversely affect production of commodities, and even employment. When the price of a commodity increases with the levy of a tax, its demand falls (if it happens to be a commodity with elastic demand). As a result, its production falls, and so does employment
5. Feed Inflation
Another demerit of indirect taxes is that they feed inflation. Imposition of these taxes tends to raise the prices of commodities, thereby leading to higher costs, to higher wages, and again to higher prices. Thus price-wage cost spiral sets in the economy.
6. Lack of Civic Consciousness
A person who buys a commodity does not know that he is paying a tax to the government in the price of the commodity. Therefore, such taxes do not inculcate civic consciousness among .the majority of taxpayers who are ignorant of the fact that they are contributing something to the state exchequer.

Judiesiz answered the question on July 7, 2018 at 00:17


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