The tax which is paid by some person but their burden or incidence is borne by some other person, is called an Indirect tax. Taxes which are imposed on expenditure incurred on commodity are regarded as indirect taxes.
For Example—Excise duty, Custom duty, Sales tax etc.
Two merits of indirect taxes:
1. Convenient: They are mostly levied on commodities and are paid by consumers when they buy them in the market. The amount of tax is included in the price of the commodity and the consumer pays the tax without experiencing its pinch.
2. Equitable: Indirect taxes are equitable in the sense that they are paid by all the sections of the community at the time Of making purchases of goods in the market, in the form of sales tax or custom duty.
Two demerits of indirect taxes:
1. Absence of Civic Consciousness: Since the tax payer do not feel that they are paying a tax at the time of purchasing a commodity, these taxes do not promote civic consciousness among the citizens.
2. Uneconomical: The cost of collection is quiet heavy. Every source of production has to be guarded. Large administrative staff is required to administer such taxes. This turns out to be a costly affair.
