In this lesson we shall learn about the importance of tax in people's welfare and before that we shall learn about the difference between the Direct and the Indirect tax.
Difference between Direct and Indirect tax.
Direct tax
Indirect tax
Tax burden
The burden falls directly on the individual
The burden is shifted to the consumer by the manufacturer or service provider
Imposed on
personal income and corporate income
various goods and services
Helps in reducing inflationMight help in increasing inflation
Tax evasion
PossibleNot possible
Mode of progress
Progressive, reduce inequalitiesRegressive, enhance inequalities
Confined to an entity or individual taxpayer
Wide coverage because all the members of the society are taxed
Need for Tax and Peoples Welfare
  • The first and foremost objective of the taxes is economic development, that is government need revenue for capital formation, i.e. the developmental process such transportation, sanitation, public safety, education, health-care systems, scientific research, culture and the arts, military, public works, public insurance, etc
  • Taxes are also used as an effective means of controlling/handling inflation. By increasing the rate of direct taxes, private spending can be controlled. So that, the pressure on the commodity market is reduced.
  • A government's ability to raise taxes is called it's fiscal capacity.
  • Governments also use taxes to fund welfare, public services, and to implement schemes for the people.
  • As per the Theory of money creation, taxes are not needed for government revenue, as long as the government in question is able to issue flat money.
  • So the taxes are the main revenue to the government for funding social services and also it is important for many developmental processes in a country to take place.
This explains the importance of tax to the government and also for the welfare of people. With this lesson the theory part of this chapter is over and the understanding of  direct and indirect taxes must be learned by the students