Which one of the following is false about direct taxes? A. It imposes the impact and incidence on the same person who earns the income. B. It imposes on income and profit rather than goods and services. C. It imposes the impact and incidence on different persons who earn the income. D. It applies the principles of ability to pay approaches.
Answer (1)
Direct taxes are a type of taxation where the burden and responsibility for payment are on the same person or entity earning the income. Let’s explore each option to determine which statement is false:
A. It imposes the impact and incidence on the same person who earns the income.
This is true. In direct taxes, the person who earns the income is the one who pays the tax, bearing both its legal and economic burden.
B. It imposes on income and profit rather than goods and services.
This is also true. Direct taxes like income tax and corporation tax focus on individual and business earnings rather than the sale or purchase of products.
C. It imposes the impact and incidence on different persons who earn the income.
This statement is false. In the case of direct taxes, the impact (who is legally responsible) and incidence (who ultimately bears the cost) are on the same person or entity.
D. It applies the principles of ability to pay approaches.
This statement is true. Direct taxes are often structured to be progressive, meaning they take into account the taxpayer's ability to pay, taxing higher incomes at higher rates.
After analyzing each statement, option C is false because it goes against the fundamental nature of direct taxes. In direct taxation, the impact and incidence are on the same person, not different people.
Thus, the false statement about direct taxes is C. It imposes the impact and incidence on different persons who earn the income.
