Direct Tax v. Indirect Tax

Question 1

Distinguish between direct tax v. indirect tax.

Answer 1

Direct taxes are taxes wherein both the incidence (or liability for the payment of the tax) as well as the impact or burden of the tax falls on the same person. An example of this tax is income tax where the person subject to tax cannot shift the burden of the tax to another person.

Indirect taxes, on the other hand, are taxes wherein the incidence of or the liability for the payment of the tax falls on one person but the burden thereof can be shifted or passed on to another person. An example of this tax is the value-added tax. (Aban, Law of Basic Taxation, p. 20)

Question 2

Distinguish between direct tax v. indirect tax.

(alternative answer)

Answer 2

A direct tax is a tax which is demanded from the person who also shoulder the burden of the tax. Examples include corporate and individual income taxes.

An indirect tax is a tax which is demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another, and the burden finally resting on the ultimate purchaser or consumer. An example is value-added tax.