Get premium membership and access revision papers with marking schemes, video lessons and live classes.

Processing. Please wait.

Demerits or disadvantages of indirect tax

Answer Text:
DEMERITS OF INDIRECT TAXES
1. END May fuel inflation; continued increase in indirect taxes may fuel inflation as it directly increases the prices of goods and services.
2. Less equitable/regressive; the same amount is charged on both the high and the low income earners making the tax burden to fall
heavily on the low income earners. The low income earners end up paying a larger proportion of their income as tax.
3. Can be avoided; indirect taxes can be avoided by people who do not consume the taxed commodity.
4. Lack of civic/contributors awareness; the tax is hidden in the price of the
commodities therefore the tax payers are not aware that they are contributing anything to the state.
5. Expensive to administer/expensive in collection; the government must employ many tax inspectors making indirect taxes expensive in collection and administration.
6. Discourages savings; increased expenditure
due to increased prices will lead to low saving and hence low investments.