Answer to Question #129501 in Macroeconomics for alice william

Question

the revenue of the Zambia government is mostly from taxation. distinguish between direct and indirect taxes giving two examples of each

Answer 1

Tax refers to compulsory charges that are levied by the government to employee income, corporate profits, economic activities, or added to costs of some goods and services. It represents a compulsory contribution by economic agents to government revenue.

Direct taxes refers to taxes that are levied on income, wealth, and profits. They are paid by an individual or entity directly to the government or the tax authority as they are deducted directly from income or wealth. Examples include personal income taxes and corporate income taxes.

Personal income taxes are a percentage charge or deduction from an individual income, especially employee wages and salaries. On the other hand, corporate income taxes are a percentage charge on or a reduction from firms' profits. The general corporate tax in Zambia is 35%.

Indirect taxes are taxes that are charged on producers of goods and services and are paid by the consumers indirectly through the buying of goods and services. Indirect taxes increase the price of goods and services, and hence consumers pay them during a purchase of goods and services for they are absorbed in prices. This means that indirect taxes are taxes posed on transactions or on expenditure, and are paid by consumers indirectly when they buy goods and services. Suppliers of goods and services collect the taxes on behalf of the taxing authorities. Examples include value added tax (VAT) and excise duties.

VAT is an ad valorem tax levied as a percentage of the value of goods and services. The percentage VAT increases the value of goods and services, and hence is absorbed in prices. In Zambia, VAT is 16% and this means every consumer pays 16% tax to the government on the value of goods and services purchased and on which VAT applies. On the other hand, Excise duty is a form of tax levied on the production, licencing, and sale of goods and services. It is levied on the production of petroleum, tobacco, and liquor. It increases the cost of production and hence an increase in price, and paid by consumers during purchase.

References:

https://www.economicshelp.org/blog/158040/economics/types-of-tax/

https://www.tutor2u.net/economics/reference/direct-and-indirect-taxes