Direct Taxes

Definitions

Examples:
1. Income tax
(P.A.Y.E.)

2.
3.
4.
5.

6.

Corporation
Tax
Capital gains
Tax
Land Taxes
Capital
Transfer Tax
or Estate
Duties
Motor vehicle
Duties

Taxes based on Income, Profits or wealth directly paid by the

individual or company they are levied on.
Taxes levied on income and wealth when the actual payment
(impact) and ultimate burden (incidence) of a tax fall on the
same individual or business.
Imposed on income earned (wages and salaries from work
and interest income from savings). It is generally deducted
before workers receive their wage or salary. A tax table is
generally used. In T&T the first $60,000 is tax free, above
this 25% is charged.
This is paid by companies and is calculated as a percentage
of the annual profits that they make
Paid when a profit is made on the sale of investments or
assets such as shares, land and houses
Taxes levied on properties
These taxes are paid when a person passes on wealth (i.e.
transfer of property that may be a gift or legacy) to others
(usually members of the same family).
Paid to import and license a motor vehicle

Advantages
Cannot be passed on to anyone
else it is therefore certain how
much has to be paid
It is clear how much tax is being
paid not hidden in the price of
a product
Higher rates of tax can be levied
on high incomes, making the tax
system progressive

Disadvantages
May act as a disincentive to work
High direct taxes may encourage
wealthy people to emigrate
Expensive to administer the tax system
to try to make sure that everyone pays
the correct amount of tax

Indirect Taxes
Definitions

1.

2.

3.

4.

5.

Import Tariffs
and Customs
Duty
Excise duties

Purchase Tax
or General
Consumption
Tax (GCT)
Value Added
Tax (VAT) (Ad
Valorem Tax)
Stamp Duties

Taxes based on spending, paid by the retailer but indirectly

passed on to the final consumer.
Taxes paid on goods and services, the impact and incidence
of the tax fall on different people. Examples are:
Taxes levied on imported goods. They seek to raise the prices
of imports and make domestically produced goods appear at
a better value
Taxes levied on certain goods manufactured in the country
(e.g. alcohol and cigarettes). It can also discourage
consumption of these goods that are likely to be harmful
Tax applied to a range of consumer goods and services at
retail outlets (tobacco, petrol, wines & spirits, furniture).
Different rates may be applied to different types of products.
Some food may be zero rated
A tax levied on goods at each stage of production. In T&T
the rate is 15%. Businesses can claim back from eth
government the tax they pay, so only the final consumers end
up paying the tax, in the form of higher prices
Paid by the consumer for legal transactions, e.g. purchase of
property

Advantages
Have to be paid by all those buying
the products, so the tax rate can be
low if products are taxed
Do not act as a disincentive to work
as they are not based on income

Disadvantages
They are regressive. A high-paid
person will pay the same petrol tax
as a low-paid person
They add to inflation by increasing
prices
The impact o f the tax is unclear
how much of the price being paid is
tax?