© examsnet.com
Question : 15
Total: 19
What is the difference between direct tax and indirect tax ? Explain the role of government budget in influencing allocation of resources.
Solution:
Difference between Direct tax and Indirect tax
Role of government budget in influencing allocation of resources :
To achieve the social and economic objectives, government provides more resources into socially productive sectors like rural electrification, education, health, etc. Moreover, government allocates more funds in the production of socially useful products and draws resources from some other areas to promote balanced economic growth of regions.
| Direct tax | Indirect tax |
|---|---|
| (i) When the liability to pay tax and the burden of that tax falls on the same person, it is called direct tax or we can say when impact & incidence of tax is on same person. | When the liability to pay tax is on one person and the burden of that tax falls on some other person, the tax is called an indirect tax. Hence impact and incidence is on different persons. |
| (ii) A direct tax is the tax whose burden is borne by the person on whom it is imposed. | Indirect tax is a tax whose burden can be shifted to others. |
| (iii) It is progressive in nature. | It is regressive in nature. |
| (iv) Eg : Income tax, wealth tax. | Eg : Excise duty, custom duty. |
To achieve the social and economic objectives, government provides more resources into socially productive sectors like rural electrification, education, health, etc. Moreover, government allocates more funds in the production of socially useful products and draws resources from some other areas to promote balanced economic growth of regions.
© examsnet.com
Go to Question: