IGCSE Economics Paper-2: Specimen Questions with Answers 66 - 66 of 100
Passage
“In developing countries, in contrast, inflation is not purely a monetary phenomenon. Factors typically related to fiscal imbalances, driving higher money growth and exchange rate depreciation, dominate the inflation process in developing countries. “
Question 66 (5 of 5 Based on Passage)
Explanation
Key Differences between Direct and Indirect Tax Are
- Levied on: Direct tax is levied on individuals, Hindu undivided Families, firms, companies etc. In contrast to it, indirect tax is borne by the end-consumer of different goods and services.
Burden: In case of direct tax the burden of tax cannot be shifted while burden can be shifted in indirect taxes.
Tax evasion: Tax evasion is possible due to lack of administration in collection of direct taxes, while taxes cannot be evaded as it is charged on goods and services in indirect taxes.
Inflation: Direct tax can curb inflation, while indirect tax may increase inflation.
Effect: Direct tax put fewer burdens through the collection of tax amount rather than indirect taxes, where collection is distributed across various parties and consumers.
Inequalities: Direct tax reduces inequalities in the country and is progressive whereas, indirect tax enhances inequalities and is regressive.
Administrative cost: Direct tax in comparison to indirect taxes involves greater administrative costs as it has many exemptions.
