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Definition and examples of direct taxes

Answer Text:
Direct tax
These are taxes where the impact and the incidence of the tax are on the same person. It is not possible to shift/pass any part of the tax burden to anybody else.
This type of tax is based on incomes, profits and property of individuals as well as companies.
They include:
i. Personal income tax
This is a tax that is imposed on incomes of individuals and is usually progressive in nature.
Example pay-As You-Earn (PAYE) for salaries.
In most cases it is paid through check-off system where the employer deducts it from the employee’s salary and
remits it to the tax authorities.
ii. Corporation tax
This is tax levied on profits of companies. It is usually proportional in nature.
iii. Stamps duty
This is tax paid in areas such as conveyance of land or securities from one person to another.
iv. Estate (death) duty
This type of tax is imposed on property transferred
after the owners’ death. The tax helps in raising government revenue and also in redistributing income since the inheritor has not worked for it.
v. Wealth tax
This is tax levied on personal wealth beyond a certain limit.
vi. Capital gains tax
This is tax levied on gains realized when a fixed asset
is sold at a price higher than the book value.
vii. Capital transfer (gifts) Tax
This is tax imposed on the value of property transferred from one person to another as a gift. The tax is designed to seal loopholes whereby a wealthy person may try to avoid tax by transferring his/her property to a
friend or a relative as a gift.
This type of tax is progressive in nature. It however does not affect transfers between spouses or to charitable organizations.