Principles of Taxation

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Chapter 5

Classification of Taxes

The most common and traditional classification of taxes is as follows:

Direct Tax

• This is a tax whose burden is borne by the person on whom it is levied.


• Examples include PAYE, corporation tax, capital gains tax, wealth tax etc.


• Considered to be progressive

Indirect tax

Indirect taxes are those paid by consumers when they buy goods and services.

• May result with higher retail price.


• Levied equally irrespective of income.


• Examples include VAT, excise tax, customs duty.


• Considered to be regressive.

However, its good to note that some taxes exhibit both progressive and regressive characteristics.


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