Q.State the merits and demerits of direct taxes.

Direct taxes are praised for fairness and predictability, but criticised for being easy to evade and inconvenient to pay.

Merits:

• Equity — a progressive structure taxes according to ability to pay.
• Certainty — the taxpayer knows the amount and timing of the liability in advance.
• Elasticity — revenue tends to grow automatically as national income grows.
• Civic consciousness — the felt burden makes citizens more interested in government spending.
• Reduces inequality — progressive taxation narrows the rich-poor income gap over time.

Demerits:

• Possibility of evasion — direct, unshiftable burden tempts some taxpayers to conceal income.
• Inconvenient — requires return-filing/assessment procedures and setting aside a lump sum for tax.
• Arbitrary rate-setting — deciding 'fair' slabs/exemptions involves political/administrative judgement.
• Can discourage saving/investment — very high marginal rates can, in principle, reduce the incentive to earn/save/invest more.

Listing only 'easy to evade' as a demerit and omitting the equally-emphasised points about inconvenience and the arbitrariness of rate-setting.