Question

State the following:

Three demerits of an Indirect tax.

Explain briefly two demerits of indirect tax.

Give two disadvantages of indirect taxes.

Mention three demerits of indirect taxes.

Explain any two demerits of indirect tax.

Answer 1

The following are the demerits of indirect taxes:

1. Regressive: The main drawback of indirect taxes is that they are regressive in nature and hence unjust. They fall on all persons indiscriminately. So they neglect the principle of ability to pay. The poor feel relatively more burdened. Hence, these taxes are unjust and inequitable.
2. No Civic Consciousness: Indirect taxes do not create civic consciousness among the tax-payers because they are imposed on commodities and hence the tax-payers do not feel at all that they are paying the tax. 
3. Uncertain: Another great demerit of indirect taxes is that they are extremely uncertain. Taxes on goods with elastic demand are very uncertain. When a commodity is taxed, its market prices rise, which results in lower demand. So it is quite difficult to anticipate the income from indirect taxes. However, indirect taxes can be made certain if they are imposed on necessities of life. But such taxes will become regressive and hence unpopular.
4. Discourage Savings: Indirect taxes discourage savings as they are included in price. People have to spend more on commodities. Hence, they discourage savings.