Direct and Inirect taxes(benifits and disadvantages) Essay

Direct and Indirect taxes both have their benefits and disadvantages, these factors need to be taken into consideration when thinking about which of these taxes revenue should go towards the improvement of education of the UK workers.Direct taxes are taxes imposed on income, wealth and company profits, for example income tax, national insurance contributions and corporation tax.

By using the revenue direct taxation this would allow the governments to estimate how much income tax revenue can be expected with reasonable confidence. By increasing direct taxation, if it’s progressive the income distribution becomes less uneven and it can reduce inflationary pressure when spending is high. However, it unfortunately creates many disincentives for instance it creates more of a disincentive for workers to work harder and earn more, since a higher percentage will be taken in tax, the increase in direct tax also increases a disincentive for firms to take risk and invest if profits are heavily taxed, so could reduce economic tax.

Indirect taxes are taxes imposed on expenditure. Examples are VAT (value added tax), duties on items such as tobacco and fuel. This benefits the economy as people have more choice (buy goods and pay tax or save and do not pay the tax), externalities may also be controlled. However, they are regressive, an increase on the tax on cigarettes, for example, will hit the poor more than the rich, further more increasing the price of goods by an increase in indirect taxes can add to the cost push inflationary pressure.Both of these taxes have their advantages and disadvantages, they will need to be weighed up by the government and the government will need to come to a decision where the advantages of each of these taxes would outweigh their disadvantages so they would be able to come up to s reasonable conclusion that will also benefit the whole economy not just the people gaining from this benefit of increased education and training.