Describe any five features of direct tax. [5]

Explanation of Features:

1. Incidence and Impact: Direct taxes cannot be shifted to others. For example, if a salary earner pays income tax, the employer does not bear the tax burden—it is the individual’s responsibility.

2. Progressive/Proportional Structure: Nepal’s income tax system follows a progressive rate:

   • Up to NPR 400,000: 0%
   • NPR 400,001–800,000: 10%
   • NPR 800,001–1,200,000: 20%
   • Above NPR 1,200,000: 30% This ensures higher earners contribute more, promoting fairness.

3. Government Authority: Direct taxes are mandatory under laws like the Income Tax Act, 2058. The government uses these funds for development projects, healthcare, and education, benefiting society as a whole.

4. Elastic Revenue: Unlike indirect taxes (e.g., sales tax on goods), direct taxes grow with the economy. For instance, if national income rises by 10%, direct tax revenue may increase by more than 10% due to higher tax brackets.

5. Redistribution and Equity: Direct taxes fund social welfare programs (e.g., old-age pensions, scholarships). By taxing the rich more heavily, the government can reduce poverty and improve living standards for all citizens.

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Note for Examiners:

• Avoid vague statements like “direct taxes are fair.” Instead, explain mechanisms (e.g., progressive rates, government use of funds).
• Use Nepali examples where possible (e.g., Income Tax Act, 2058; Inland Revenue Department).
• Do not confuse with indirect taxes (e.g., VAT, excise duty), which are shifted to consumers.