Question

What are the demerits of indirect tax?

Answer 1

Following are the various demerits of indirect taxes:

1. Regressive: Indirect taxes are not equitable as they are regressive in nature. They are to be paid by even the poorest of the poor on many essential commodities such as medicines or packaged milk.
2. Inflationary: Indirect taxes tend to be highly inflationary. The imposition of indirect taxes on commodities increases their market prices. This tends to raise the cost of living for the people which results in the demand for higher wages by the worker. Thus indirect taxes generate a spiral of higher price, higher costs, higher wages and again higher price.