Should Direct Taxes be Abolished?

The government raises revenue from two different types of taxation. One of these sources is the direct tax which is imposed on the wealth or earnings of the citizens. Some examples of direct taxes include the income tax and national insurance. It is not related with the amount that has been spent by the person who is being taxed. On the other hand, indirect taxes are the taxes that are imposed on the transactions taking place between two people. The examples of indirect taxes include value added tax VAT and the custom charges that are imposed on imported goods. There is a debate going on if the direct taxes should be abolished. Various arguments have been given again and in favor of the abortion of direct taxes.

Arguments in favor of the abortion of direct taxes:
1. There are many people who believe that direct taxes are an intrusion in the lives of the citizens by an overbearing state. Therefore the image of direct taxes is that of a crude appropriation of a sizable portion of the earnings of a person and therefore it is considered as being oppressive. Due to this reason, a lot of people complain about paying taxes. This can be avoided and instead of being a duty, paying taxes can become something of which people are proud of. Therefore by abolishing the direct taxes, the stigma attached with them can be removed and at the same time the overweening mechanism can be replaced by something that is more subtle and at the same time equally effective.

2. At present the poorer sections of the society believed that as compared to the rich, they are disproportionately burdened by the direct taxes and it is considered and that they are living off the people who are in a worse position. Whether this assumption is based on facts or not, it is important that the government should make the taxes appear to be fair.

3. More steps in favor of redistributing the burden of taxes more fairly can be taken by the government if the amount of tax that depends on the nature of the item being text can be varied. An example in this regard can be given of caviar which can be text mode as compared to the baked beans. In this way, the rich persons will pay taxes that are suitable to the size and the quality of their spendings.

4. Switching over to indirect taxes will also mean that a country will become a tax haven for the wealthy people. In this way, it can be ensured that a lot of people spend their money on the products of that country and in this way the economy of such a country will receive a boost as compared to other countries.

5. In the same way, the abolition of direct taxes can also be favored on the ground that in case of direct taxes, the evasion of tax is easier. The reason is that there are several legal loopholes present like the offshore companies and these loopholes are used by the accountants to make sure that their clients pay as little tax as possible. On the other hand, the situation is not the same in case of indirect taxes. Similarly, with the help of indirect taxes, the huge amount of money that is being spent at present for detecting the division of direct taxes can also be saved.

At the same time, there are many persons who are not in the favor of the abolishing of direct taxes. According to these people, direct taxes should not be abolished due to the following reasons:
1. There are many people who believe that it is the right of the government to demand money from the citizens as the governments provide a lot of services to the citizens like defense, welfare and education. Therefore, direct taxes should not be abolished outrightly even though it appears that a lot of people don’t like the present methods of taxation. There can be several different ways in which the direct tax methods can be changed with a view to help the people. As a result, there is no real reason why taxation system should be changed thing for the elusive public approbation.

2. Generally, a lot of people believe that the rich do not pay the exact amount of taxes that are due. This can be attributed to the notions like that of the ‘establishment’ which blurred the distinction between the rich and the government that has the responsibility to collect the taxes. But it needs to be noted in this regard that for the worse off sections of the society, the system of direct taxes is much better. The reason is that these days of indirect taxes, the poor may have to pay more taxes. The reason behind this situation is due to the fact that after achieving a particular level of income, the rise in the cost of living increases slower as compared to the income.

3. It is also believed by many that abolishing direct taxes and going for the system of indirect taxes may not work because it will need a value judgment on various types of goods. For example, it needs to be decided if a car is a luxury item or not. Similarly, can a distinction be made between a Ferrari and a multi-utility van. If this is the case, the next question that arises is where the boundary can be drawn. This type of problems will be present in case of all the goods and therefore, there is a danger that the system may become arbitrary and at the same time, very difficult or even impossible to administrate.

4. Similarly, it can also be said that although this may take place, people may decide to go to other parts of the world, which are attractive in terms of the taxation system. For example, significant problems may be caused if people decide to go abroad for doing their shopping and in this way, deprive their own country from valuable revenue.

5. At the same time, it also needs to be noted that it is not true that the evasion of text is easy in case of direct taxes. As against this popular belief, perhaps the evasion of tax is more easier in case of indirect taxes. The reasons include smuggling, car boot sales, unlicensed trading and similar other causes. An example in this regard can be given of the situation according to which half of the cigarettes that are being sold in Britain were sold illegally. Therefore, indirect taxes can prove to be disastrous for the revenue of the country and at the same time much more difficult to trace as compared to detecting the evasion of direct tax.