The use of indirect tax has been applauded to be good in increasing tax revenues, however
it has received several critics from different economists. Kindly explain the basis of these
critics and their implications.
The primary criticism of indirect taxes is that they are regressive, meaning that they disproportionately affect lower-income households. This is because indirect taxes are typically applied as a percentage of the price of goods and services, meaning that lower-income households must spend a larger portion of their income on these taxes than higher-income households. This can lead to increased inequality and poverty, as lower-income households are unable to afford the same goods and services as higher-income households.
Another criticism of indirect taxes is that they can be difficult to administer and enforce. This is because they are often applied to a wide range of goods and services, making it difficult to ensure that all taxpayers are paying the correct amount of tax. This can lead to a lack of compliance and an increase in tax evasion, which can reduce the amount of revenue collected by the government.
Finally, indirect taxes can also be seen as a form of double taxation, as they are often applied to goods and services that have already been taxed at the production or manufacturing stage. This can lead to an increase in the cost of goods and services, which can have a negative impact on economic growth.