| Definition |
Tax paid directly by individuals or organizations to the government. |
Tax levied on goods and services, paid indirectly by consumers through intermediaries. |
| Who Bears the Burden? |
The person or entity on whom the tax is imposed directly bears the burden. |
The tax is initially paid by producers or sellers but passed on to consumers through prices. |
| Examples |
Income Tax, Corporate Tax, Wealth Tax, Capital Gains Tax. |
Goods and Services Tax (GST), Value Added Tax (VAT), Excise Duty, Customs Duty. |
| Tax Incidence |
Cannot be shifted to another party. |
Can be shifted to another party (usually consumers). |
| Collection Method |
Collected directly from the taxpayer by the government. |
Collected by intermediaries (like retailers) and then paid to the government. |
| Tax Base |
Based on income, wealth, or profits of individuals or entities. |
Based on consumption of goods and services. |
| Progressiveness |
Usually progressive, higher earners pay a higher percentage. |
Usually regressive or proportional, same rate applied regardless of income. |
| Effect on Income Distribution |
Tends to reduce income inequality through progressive taxation. |
May increase income inequality as it impacts all consumers equally. |
| Examples of Tax Rates |
Varies with income brackets and tax laws. |
Fixed or percentage rates on goods/services, e.g., 5%, 12%, 18% GST slabs. |
| Impact on Economy |
Directly affects disposable income and savings. |
Affects consumption patterns and prices of goods and services. |
| Administration |
Requires detailed record-keeping and compliance by taxpayers. |
Easier to administer due to indirect collection from businesses. |
| Examples of Applicability |
Salary earners, businesses paying corporate tax. |
Consumers buying goods, travelers paying customs duty. |
Direct Tax vs Indirect Tax