Major drawbacks or disadvantages of direct tax can be pointed out as follows:
1. Chance Of Evasion
There is high chance of tax evasion. It is very easy for the people to evade tax by submitting false income report. Corrupted administration also plays significant role in tax evasion.
2. Inconvenience
It is inconvenient for the taxpayer to follow different process and filling different forms to pay tax. It is also inconvenient to make proper record of payment.
3. Discourage Investment
Higher tax rate reduce the saving capacity of the people. Low saving affects investment capacity. So, direct taxes adversely affect the capital formation.
Also Read:
Also Read:
4. Reduce Motivation
High tax rate demotivates people to work hard and make more money. It hampers their ability and effectiveness at work.
5. Discourage Entrepreneurs
Entrepreneurs are discouraged to commence business because of direct taxes. It negatively impacts nation's business environment.
