If you are appointed as the Finance Minister of India

cbse-class-12

#1

if you are appointed as the Finance Minister of India, which taxes would you prefer, direct taxes or indirect taxes and why?


#2

There is really nothing to choose between direct taxes and indirect taxes as such. Both of them have their relative merits and demerits. Both direct taxes and indirect taxes are not substitutes for each other. They are complementary to each other. Objectives of taxation are common, thus, a mix of both should be used.
These objectives are:
(i) To raise resources for the government.
(ii) To raise the rate of investment in the country through the curtailment of consumption.
(iii) To raise the incremental saving ratio.
Similarly they differ from each other as:
(i) Indirect taxes reach all the sections of the society and direct taxes cannot reach all the sections of the society.
(ii) Direct taxes can be highly progressive;’ indirect taxes are generally proportional.
(iii) Indirect taxes can be easily used to influence the consumption of specific commodities direct taxes cannot be thus, used.
In short, it is necessary to strike a balance between direct taxes and indirect taxes -as a source of tax revenue.