Q.
Explain the following terms:-
a) Gross Domestic Product
b) Direct Tax
c) Indirect Tax
d) Consumer Price Index
e) Balance of Payment
(20 marks, 2011 Q8)
What are direct and indirect taxes? List out their differences.
A.
In a general sense, a direct tax is one imposed upon an individual person (juristic or natural) or property (i.e. real and personal property, rental profits, livestock, crops, wages, etc.) as distinct from a tax imposed upon a transaction. In this sense, indirect taxes such as a sales tax or a value added tax (VAT) are imposed only if and when a taxable transaction occurs.
People have the freedom to engage in or refrain from such transactions; whereas a direct tax (in the general sense) is imposed upon a person, typically in an unconditional manner, such as a poll-tax or head-tax, which is imposed on the basis of the person's very life or existence, or a property tax which is imposed upon the owner by virtue of ownership, rather than commercial use. Some commentators have argued that "a direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an indirect tax can be."[1]
Ref:
Verbatim from http://en.wikipedia.org/wiki/Direct_tax