Merits/advantages of direct taxes

Business studies study module
  1. Economical in collection; most of direct taxes are collect at source and the cost of collecting them is fairly low.
  2. Tax revenue is certain; the tax payer knows what and when to pay and the government knows how much tax revenue to expect at what time (can be collected from the annual tax returns in advance)
  3. Equitable /equity; they facilitate fair distribution in tax contribution as people pay according to the size of their income.
  4. Simplicity /simple to understand; they are easy and simple to understand both the tax payer and the collector.
  5. Does not affect the price of goods and services; direct tax does not cause inflation as it only affects consumer’s disposable incomes and not the prices of goods and services.
  6. Brings redistribution of wealth; direct taxes are progressive in nature hence the wealthier members of the society are taxed more than the poorer members of the society.
  7. Civic consciousness; tax payers feed the pinch of paying tax and thus take a keen interest in government expenditure.
  8. No leakages; loss of collected revenue is minimized as the tax is paid directly to the tax authorities and not through middle men.
  9. Desirable; the tax is desirable because it only affects people who fall within the jurisdiction of income tax and corporation tax.
  10. Elastic/flexible; the tax is flexible in that it can be expanded to cover as many areas as desirable.

It can also be raised or reduced according to the needs of the economy.



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