Question

discuss the main advantages and disadvantages of personal income tax compared with indirect taxation

Answer 1

Tax that is paid on one's personal income is termed as personal income tax . It is a kind of direct tax . So we can enlist the advantages and disadvantages of direct and indirect taxation as follows :

Personal income tax ( direct tax)

Advantages : equitable , redistribution of income , direct control over people's spending , instrument to control inflation .

Disadvantages : discourages hard work , increases resource spent on tax evasion , difficult to implement in some cases , can lead to lower level of investment in the economy .

Indirect tax :

advanatges : difficult to evade , wider tax base , easy to collect , can be policy specific ,

disadvantages : unequitable , regressive in nature , revenue generated cannot be predicted .