 There are two major types of taxes.

They
are direct and indirect taxes
 Direct Taxes: These are taxes that are
directly paid to the government by the
taxpayer. Direct taxes are levied on
individuals and organizations directly by
the government e.g. income tax,
corporation tax, wealth tax etc. The
payer of this tax bears the burden
directly and easily.
 I. Company tax: This is also called corporate tax, it is
the tax levied on the profits made by a company.
II. Capital tax: This is the tax levied on property or on
capital asset like cars, land, personal houses etc.
When a tax is levied on the properties of a dead
person, it is called “death duty” and it is paid by the
person who inherited the properties of the deceased
person.
III. Poll tax: This type of tax is operated on a flat rate
basis usually imposed on the income of some
individuals. It is a flat tax levied on every citizen of a
region for the purpose of raising money for the
government.
 IV. Expenditure tax: This is the tax levied
on the part of a person’s income which is
actually spent.
V. Capital gain tax: This is the tax levied
on the gains or profits derived from the
sale of land and other capital asset.
VI. Personal income tax: This is the tax
levied on income of an individual usually
during a period of one year.
 I. They are easy to estimate and collect
II. They are not inflationary
III. It helps to reduce the inequality of
income
IV. They are collected at low cost to the
government
V. They are convenient to payers based on
their ability to pay
VI. Certainty: In the case of a direct tax, the
payers know how much is due from them
and when. The authorities also know the
amount of revenue they can expect.
 I. It reduces the purchasing power of the
payer
II. Easy to evade: payers of direct tax
can submit a false return of income and
thus evade the tax.
iii. Direct taxes may discourage saving
and investment
iV. Direct taxes may cause social conflict
V. Direct taxes may reduce motivation
level on tax payers
 Indirect Tax: These are taxes resulting from
manufacturing or sale of goods and
services. They are taxes collected by an
intermediary (such as a retail store) from the
person who bears the ultimate economic
burden of the tax (such as the consumer)
 Indirect taxes are levied on goods and
services, the producers or sellers bear the
burden at first before transferring to the
consumers.
 a. Sales tax: This is the type of tax levied on
the sale of a certain commodities, it is
collected either at the wholesale stage or
retail stage and it is passed to the
consumers through increase in the prices of
goods.
b. Purchase tax: This is the tax levied on
certain consumer’s commodities such as
cars, machines, television set etc., and this
tax is usually collected at the wholesale
stage.
 c. Value added tax (VAT): This is the type of tax
that is imposed on goods and services at each
stage of production. The final burden is usually
carried by the consumers.
d. Custom duties or tariffs: These types of taxes
are grouped into two, these are: .export duties
and import duties. Export duties: These are
taxes levied on the goods that are sent out
(exported) to other countries; it is paid by the
exporter and the import duties which are the
tax levied on goods that are brought into the
country from other countries, they are paid by
the importer.
 a. They help to check the importation of
harmful commodities
b. They serve as a source of revenue to the
government
c. They help to protect the infant industries
d. They help to correct balance of
payment deficit
e. They are not easy to evade or avoided
f. Indirect taxes through custom duty and
tariff, are used to protect importing
countries from being used as dumping
ground for inferior goods
 a) They are inflationary in nature
b) They increase the prices of
commodities
c) They are difficult to estimate
d) They could lead to industrial unrest
e) They are not economical, as they
attract high cost of collection
f) They bring uncertainty in revenue
generation
Although taxation has been the major
source of revenue for most governments
and world wide as whole, Taxation has
both advantages and disadvantages to
nation and individual person.
 Control Inflation, Through increasing of
various taxation rate, taxation can be
used as the means of controlling inflation
especially the demand pull inflation.
Since raising of taxation rate of various
commodity result into decrease in
purchasing power of individual person
hence being a solution to demand pull
inflation.
 Discourage use of harmful products, As
there are many harmful products which are
produced in various country but the
manufacture of such products may at the
same time being a good tax payer, The
government may not decide to shutdown
such companies instead the government
will impose high tax upon such
commodity to discourage users from
consumption of such commodity, example
cigarette and spirits.
 Revenue generation, Taxation also act
as important root stock for revenue
generation, Since even if the
government will have other source of
income apart from taxation still the
amount of revenue obtained from
collection of different types of tax is
higher compared to the amount
obtained from other sources.
 Redistribution of income, Through
taxation system especially the
progression tax system taxation can be a
means of ensuring fair distribution of
income between individuals by imposing
high tax rate for those who earn more
and less tax rate for individual who has
lower income, this also can lead to
reduction of income gap between poor
and rich people.
 The disadvantage of taxation refers to all
chaos brought along by taxation issues
within society either directly or indirectly;
 Reduce purchasing power, Taxation
especially when the tax rate are high has
the tendency of reducing the disposable
income of an individual which
subsequently reduce the purchasing
power.
 Discourage saving, Since taxation rate
reduce the disposable income of an
individual, this means an individual
saving ability will be reduced.
 Discourage investment, Heavy tax rate
on firm profit become disincentive for
investor to invest on particular sector
instead investors will opt to invest in other
sector which their tax rate is of
reasonable value.