Tax concept
Taxes are defined as mandatory fees imposed by government agencies in a specific country or region on everyone who is subject to the tax burden, whether individuals, end consumers, or commercial companies, and the tax aims to collect and use them as a good source of revenue for governments, or use them in various government activities such as financing programs, supporting health and education services.
What is the difference between direct and indirect tax?
There are several differences between direct and indirect tax in terms of different elements, and they will be explained in the following:
Concept
Direct taxes are the taxes that a person or organization pays directly to the government so that they cannot be transferred to another party because there are laws governing and regulating this tax, and it is paid to the government for various purposes, examples of which are income tax, real property tax, personal property tax, and asset taxes. Indirect tax is a tax that is not paid directly to the government but is paid implicitly by a third party, which is usually the retailer. It is imposed on sales of all goods and services and not on profits or income, so that the final consumer pays the tax rate as part of the price of the commodity.
Levied tax
The direct tax is levied on income and profits, while the indirect tax is levied on goods and services.
Tax payer
The direct tax is paid by individuals and companies without directing it to another party, while the indirect tax is paid by the final consumer through a third party.
Nature of tax
A direct tax is a progressive tax; that is, its percentage increases with the increase in the income of taxpayers, while the indirect tax is a regressive tax, that is, its percentage decreases with the increase in income.
Tax impact
The effect of a direct tax is on the same taxpayer, while an indirect tax affects more than one person.
Tax inflation
Direct taxation helps reduce inflation, while indirect taxes promote inflation.
Tax burden distribution
Direct tax payments cannot be redirected to another person, but indirect tax can be transferred to another person.
Taxable operation
In direct tax, when the income or wealth of a resident reaches a maximum, it is subject to tax, and in indirect tax it is in the purchase, sale, or manufacture of goods and the rendering of services.
Tax collection
Tax collection in direct tax is difficult, while in indirect tax, tax collection is easy.
Tax application
The direct tax is applied to the one who pays it alone, but the indirect tax is applied to each stage of the distribution or production of the good or service.
Read also: What do you know about the tax base?
