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)

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Short Answer▾

State the key differences between direct and indirect tax.

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.
Direct and Indirect Taxes

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