Tax: Direct and Indirect, Progressive, and Non-Progressive, Tax & Non-Tax Revenue

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Tax and Non-Tax Revenue

  • Tax Revenue: The revenue which comes in the form of taxes. It is charged on income earned by an individual or an entity (direct tax) and on the value of transaction of goods and services (indirect tax) . E. g. Income tax, wealth tax, Dividend Distribution tax, Property tax etc.
  • Non-Tax Revenue: It is charged against services provided by the government. It also includes interest charged on loans advanced by the government for various purposes, Dividends and Profits, Profits of PSU՚s, Petroleum licenses fees etc.

Direct Taxes

  • It is financial, mandatory tax imposed on a taxpayer by the government. E. g. Income tax, Wealth tax, Property Tax, Corporate Tax, Estate tax etc.
  • The burden of tax cannot be shifted to someone else.
  • The tax is implemented by law. The failure to pay taxes is punishable under various law like Income tax Act.
  • The administration of direct taxes is looked after by the Central Board of Direct Taxes (CBDT) .
  • It is imposed on an individual, Hindu Undivided Family (HUF) , Association of Persons (AOP) , Body of Individuals (BOI) , A firm, A company etc.

Advantages of Direct Tax

  • Curbs Inflation: When the tax rates are increased then disposable income falls and liquidity decreases and this reduces the demand for goods and services and because of descending demand, the inflation is bound to condense
  • Ensure social and Economic Balance: well-defined tax slabs and exemptions ensures balance.

Indirect Tax

  • It is levied on the price of a good or service. So, it is not imposed on the income, profit, or revenue of an individual E. g. excise duty, custom duty, service tax and sales tax or value added tax.
  • In this the person paying the tax passes on the incidence to another person.
  • This tax has been replaced with GST i.e.. Goods and Service Tax.
  • The tax is paid by the consumer to the seller and seller pays it to the government.
Direct and Indirect Tax

Entities Exempted from Taxation

  • Charitable institutions
  • Non-Profit, Non-stock educational institutions
  • Religious institutions
  • Government institutions
  • Foreign Diplomats

Progressive and Regressive Tax

  • Progressive tax: They follow an accelerating schedule, so high-income earners pay more than low-income earners. Tax rate, along with tax liability, increases as an individual՚s wealth increases. Different tax slabs are there.
  • Regressive tax: This type of tax has no correlation with an individual՚s earnings or income level. In this, government assesses tax as a percentage of the value of the asset that a taxpayer owns.

Practice Questions

Q 1 Which of the following “tax” is levied at every stage of production?

(A) VAT

(B) Income tax

(C) Custom duty

(D) None of the above

Ans: (A)

Q 2 Which of the following tax is imposed by the Central Government but the state government collects it?

(A) VAT

(B) Income tax

(C) Corporation tax

(D) Stamp Duty

Ans: (D)

Q 3 What is called Tax heaven?

(A) A country which gives tax exemptions to the foreign citizens that there will be no tax on investing the money in their country.

(B) Subsidy given by the government in taxes

(C) Tax evasion in the domestic country

(D) To impose equal taxes on domestic producers and foreign producers

Ans: (A)

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