“ Public finance ” course

1. “Public finance” course First term 2010/2011 Instructor Dr. Mo’een Rajab E.mail: moeenrajab@hotmail.com Palestine University Finance and business college

2. Lecture Ten COMPLEMENTARITY ASPECT OF DIRECT AND INDIRECT TAXES

3. INDIRECT TAXES The complementary of both the types of taxation: • Both the types of taxation are necessary in order to frame the tax structure most equitably with producitvity and efficiency,

4. because one type of taxation mitigates the defects of another. • If only direct taxes are levied, the tax bruden will fall on one group of tax payers; • the other exempted group or the tax evading group in the community as such escapes from any sacrifice.

5. Distribution of the tax burden equitability: • to distribute the tax burden equitably, indirect taxation is needed. • The poor income group which is exempted from direct taxes may be tued lightly through indirect taxation by taxing the essential goods at lower rates.

6. Similarly, when tax evaders spend their concealed income on luxuries, they are caught in the tax net when luxury items are heavily taxed.

7. Changes of income with time: • Again, income of many people changes with time gaps, and it is very difficult to assess them at a very sort- time interval. • This shortcoming is, however overcome by the impositoin of commodity taxes, as consumption outlay also changes the income,

8. so tax is immediately realised from the increased income through indirect taxes. • Further, some people may think of spending more to escape from wealth tax by not converting their saving into wealth. • Such people will be caught in the net of commodity taxation.

9. The scope of commodity taxes is limited…why? • because their realisation depends on the consumer spending.

10. Therefore, the wealth accurillated by a person in existing economic equilibrium is greatly disturbed when only direct taxes are levied.

11. THANK YOU