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Question
An indirect tax is not always equitable. Give two reasons to support your answer.
Solution
An indirect tax is often considered not always equitable for the following two reasons:
- Burden on low-income groups: Indirect taxes, such as sales tax or VAT, apply to all individuals, regardless of income level. This means that low-income people pay the same tax rate as high-income people for products and services. As a result, a more significant proportion of their income is used to pay these taxes, increasing their tax burden.
- Indirect taxes do not account for the taxpayer's ability to pay. Since everyone pays the same rate, these taxes make no difference between those who can afford to pay more and those who cannot.
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