Assignment On
Impact of Indirect Tax in the Economic Growth of Bangladesh

Submitted to

Shish Haider Chowdhury

Course Instructor

Auditing & Taxation

Submitted By

Sudipta Paul

Class ID-1577

21st Batch

Date of Submission

07.09.2014

Institute of Business Administration

Jahangirnagar University

Indirect tax:
An indirect tax (such as sales tax, a specific tax, value added tax (VAT), or goods and services tax (GST)) is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the consumer). The intermediary later files a tax return and forwards the tax proceeds to government with the return. In this sense, the term indirect tax is contrasted with a direct tax which is collected directly by government from the persons (legal or natural) on which it is imposed. Some commentators have argued that "a direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an indirect tax can be.
An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products.[2] Examples would be fuell, liquor, and cigarette taxes. An excise duty on motor cars is paid in the first instance by the manufacturer of the cars; ultimately the manufacturer transfers the burden of this duty to the buyer of the car in form of a higher price. Thus, an indirect tax is such which can be shifted or passed on. The degree to which the burden of a tax is shifted determines whether a tax is primarily direct or primarily indirect. This is a function of the relative elasticity of the supply and demand of the goods or services being taxed. Under this definition, even income taxes may be indirect.
Features of Indirect Tax:

Indirect taxation is policy often used to generate tax revenue. Indirect tax is so called as it is paid indirectly by the final consumer of goods and services while paying for purchase of goods or for enjoying services. It is broadly based since it is applied to everyone in the society whether rich or poor. Since the cost of the tax does not vary according to income, indirect taxation is a regressive tax, or in other words it imposes a greater burden (relative to resources) on the poor than on the rich. The taxpayer who pays the tax does not bear the burden of tax; the burden is shifted to the ultimate consumers. In the case of a direct tax, the taxpayer has to bear the burden of tax personally; in case of indirect tax the taxpayer and the taxbearer are not the same person.
Advantages of Indirect Taxes
Indirect taxes have advantages of their own. Briefly speaking they are as under:—
1. They are the only means of reaching the poor. It is a sound principle that every individual should pay something, however little, to the State. The poor are always exempted from paying direct taxes. They can be reached only through indirect taxation.
2. They are convenient to both the tax-payer and the State. The tax-payers do not feel the burden much, partly because an indirect tax is paid in small amounts and partly because it is paid only when making purchases. But the convenience is even greater due to the fact that the tax is "price-coated". It is wrapped in price. It is like a sugar-coated quinine pill. Thus, a tobacco tax is not fell when it is included in the price of every cigarette bought. It is convenient to the State as well which can collect the tax at the ports or at the factory. A dealer collects the tax when he charges a price. He is a honorary tax collector.
3. Indirect taxes can be spread over a wide range. Very heavy direct taxation at just one point may produce harmful effects on social and economic life. As indirect taxes can be spread widely, they are more beneficial and suitable.
4. They are easy to collect. Collection takes place automatically when goods are bought and sold.
5. They are very elastic in yield, if imposed on necessaries of life which have an inelastic demand. Indirect taxes on necessaries yield large revenue, because people must buy these things.
6. When imposed on luxuries or goods consumed by the rich, they are equitable. In such cases only the well-to-do will pay the tax.
7. They check consumption of harmful commodities. That is why tobacco, wine and other intoxicants are taxed. 8. They cannot be evaded, as they are a part of the price. They can be evaded only when the taxed article is not consumed, and this may not always be possible

Disadvantages of Indirect Taxes
Indirect taxes have some disadvantages too, which are as follows:—
1. They are regressive. Indirect taxes are not equitable. For instance, salt tax in India fell more heavily on the poor than on the rich, as it had to be paid at the same rate by all. Whether a rich man buys a commodity or a poor man, the price in the market is the same for all. The tax is wrapped in the price. Hence, rich and poor pay the same amount, which is obviously unfair.
They are uncertain in yield unless necessaries are taxed. In the case of goods with an elastic demand, the tax might not bring in much revenue. The tax will raise the price and contract the demand. When the thing is not purchased, the question of the tax payment does not arise.
2. They cause the price of an article to rise by more than the tax. A fraction of the money unit cannot be calculated, so every middleman tends to charge more than the tax. The process is cumulative.
They are uneconomical. The cost of collection is quite heavy. Every source of production has to be guarded. Large administrative staff is required to administer such taxes. This turns out to be a costly affair. 4. They do not develop civic- consciousness, because often the tax-payer does not even know that he is paying a tax. The tax is concealed in the price.
5. They discourage industries if raw materials are taxed.