Question

What are the merits of an indirect tax?

Give two advantages of indirect taxes.

Mention three merits of indirect taxes.

Explain three merits of indirect taxes.

Explain any one merit of indirect tax.

Answer 1

• Broad coverage: In the case of a tax on a commodity, all the buyers of the commodity have to pay an indirect tax irrespective of their income level, whether they belong to high-income groups or low-income groups. By widening the tax net, the government can yield more revenue for public expenditure.
• Convenient: Indirect taxes are paid in small portions at regular intervals. It is not a burden to the taxpayer as it is included in the price of the commodity.
• Equity: Indirect taxes can be made equitable by imposing taxes on luxury goods consumed by the rich people and low tax on the essential commodities.
• Elastic: Indirect taxes can be made elastic and productive, particularly when they are imposed on essential goods whose demand is inelastic. So, the revenue of the government can increase by imposing the tax on such commodities.
• No evasion: Indirect taxes are to be evaded as they are included in the price of the commodity. A person can evade indirect tax only when he decides not to purchase the taxed commodity.