Theory question 106
Public Finance(a) With examples, distinguish between direct and indirect tax
(b) Explain any four problems of tax collection in any West African country
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(a) A direct tax is imposed on the income or property of persons and companies and is paid directly to government by the person who bears it, e.g. personal income tax, company tax. An indirect tax is imposed on goods and services and its burden can be shifted to consumers through higher prices, e.g. VAT, import and excise duties.
(b) Any four: tax evasion and avoidance; corruption of tax officials; inadequate records of incomes, especially in the informal sector; illiteracy and ignorance of taxpayers; shortage of trained tax staff; poor transport and communication; smuggling; low incomes; political interference; complex tax laws.
Direct tax: burden cannot be shifted; indirect tax: it can.