Disadvantages of Direct Taxes:

 

(i) Inconvenient: The great disadvantage of a direct tax is that it pinches the payer. He ‘squeaks’ when a lump sum is taken out of his pocket. The direct- taxes are thus very inconvenient to pay. Nobody can help feeling the pinch.

(ii) Evadable: The assess can submit a false return of income and thus evade the tax. That is why a direct-tax is “a tax on honesty.” There is a lot of evasion. Many of those who should be paying taxes go scot-free by concealing their incomes.

(iii) Arbitrary: If taxes are progressive, the late of progression has to be fixed arbitrarily; and if proportional, they fall more heavily on the poor. Thus, both are bad. The rate of taxes depends upon the whim of the Finance Minister. This is arbitrary.

(IV) Disincentive: If the taxes are too heavy, they discourage saving-sand investment. In that case the country will suffer economically. A high level of taxation discourages investment and enterprise in the country. It inflicts a lot of damage, on business and industry.