Though the actual definitions vary between jurisdictions, in general, a direct tax is a tax
imposed upon a person or property as distinct from a tax imposed upon a transaction, which is described as an indirect tax
. The term may be used in economic and political analyses, but does not itself have any legal implications. However, in the United States
, the term has special constitutional significance because of a provision in the U.S. Constitution that any ''direct taxes'' imposed by the national government be apportioned among the states on the basis of population. In the European Union
direct taxation remains the sole responsibility of member states.
In general, a direct tax is one imposed upon an individual person (juristic
) or property (i.e. real and personal property, livestock, crops, wages, etc.) as distinct from a tax imposed upon a transaction. In this sense, indirect taxes such as a sales tax
or a value added tax
(VAT) are imposed only if and when a taxable transaction occurs. People have the freedom to engage in or refrain from such transactions; whereas a direct tax (in the general sense) is imposed upon a person, typically in an unconditional manner, such as a poll-tax or head-tax, which is imposed on the basis of the person's very life or existence, or a property tax which is imposed upon the owner by virtue of ownership, rather than commercial use. Some commentators have argued that "a direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an indirect tax can be."
The unconditional, inexorable aspect of the direct tax was a paramount concern of people in the 18th century seeking to escape tyrannical forms of government and to safeguard individual liberty.
The distinction between direct and indirect taxation was first extensively discussed by Adam Smith
in his ''Wealth of Nations
'', as in the following passage:
The Pennsylvania Minority
, a group of delegates to the 1787 U.S. Constitutional Convention
who dissented from the document sent to the states for ratification, objected over this kind of taxation, and explained:
U.S. constitutional law
In the United States, the term "direct tax" has acquired specific meaning under constitutional law: a direct tax is a tax on property "by reason of its ownership" (such as an ordinary real estate property tax
imposed on the person owning the property as of January 1 of each year) as well as a capitation (a "tax per head"). Income taxes on income from personal services such as wages are indirect taxes in this sense. The United States Court of Appeals for the District of Columbia Circuit
has stated: "Only three taxes are definitely known to be direct: (1) a capitation . . .
(2) a tax upon real property, and (3) a tax upon personal property." In ''National Federation of Independent Business v. Sebelius
'', the Supreme Court held that a penalty directly imposed upon individuals for failure to possess health insurance, though a tax for constitutional purposes, is not a direct tax. The Court reasoned that the tax is not a capitation because not everyone will be required to pay it, nor is it a tax on property. Rather "it is triggered by specific circumstances."
In the United States
, Article I, Section 2, Clause 3
of the Constitution requires that direct taxes imposed by the national government be apportioned among the states on the basis of population. After the 1895 ''Pollock''
ruling (essentially, that taxes on income from property should be treated as direct taxes), this provision made it difficult for Congress
to impose a national income tax
that applied to all forms of income until the 16th Amendment
was ratified in 1913. After the Sixteenth Amendment, Federal income taxes are subject to the rule of uniformity but not the rule of apportionment.
In the context of income taxes on wages, salaries and other forms of compensation for personal services, see, e.g., ''United States v. Connor'', 898 F.2d 942, 90-1 U.S. Tax Cas. (CCH) paragr. 50,166 (3d Cir. 1990) (tax evasion conviction under affirmed by the United States Court of Appeals for the Third Circuit
; taxpayer's argument – that because of the Sixteenth Amendment, wages were not taxable – was rejected by the Court; taxpayer's argument that an income tax on wages is required to be apportioned by population also rejected); ''Perkins v. Commissioner'', 746 F.2d 1187, 84-2 U.S. Tax Cas. (CCH) paragr. 9898 (6th Cir. 1984) ( ruled by the United States Court of Appeals for the Sixth Circuit
to be "in full accordance with Congressional authority under the Sixteenth Amendment to the Constitution to impose taxes on income without apportionment among the states"; taxpayer's argument that wages paid for labor are non-taxable was rejected by the Court, and ruled frivolous).
Direct taxation in India
is a form of collecting taxes applicable on the general public by the means of their personal income and wealth generated and collected through formal channels and worthy government credentials such as Permanent account number and bank account details.
Section 2(c) of the Central Boards of Revenue Act, 1963 of India defines "direct tax" as follows:
:″(1) any duty leviable (or) tax chargeable under-
::(i) the Estate Duty Act, 1953 (34 of 1953.);
::(ii) the Wealth-tax Act, 1957 (27 of 1957.);
::(iii) the Expenditure-tax Act, 1957 (29 of 1957.);
::(iv) the Gift-tax Act, 1958 (18 of 1958.);
::(v) the Income-tax Act, 1961 (43 of 1961.);
::(vi) the Super Profits Tax Act, 1963 (14 of 1963.); and
:(2) any other duty or tax which, having regard to its nature or incidence, may be declared by the Central Government, by notification in the Official Gazette, to be a direct tax.″
Direct taxation in other countries
Tax policy in the European Union
(EU) consists of two components: direct taxation, which remains the sole responsibility of member states, and indirect taxation
, which affects free movement of goods and the freedom to provide services. With regard to European Union direct taxes
, Member States have taken measures to prevent tax avoidance and double taxation. EU direct taxation covers, regarding companies, the following policies: the common consolidated corporate tax base, the common system of taxation applicable in the case of parent companies and subsidiaries of different member states (to avoid withholding tax
when the dividend qualifies for application of the EC Parent-Subsidiary Directive, the financial transaction tax, interest and royalty payments made between associated companies and elimination of double taxation if the payment qualifies for application of the EC Interest and Royalties Directive.European Union Direct Taxes, by Salvador Trinxet Llorca
/ref> Regarding direct taxation for individuals, the policies cover taxation of savings income, dividend taxation of individuals and tackling tax obstacles to the cross-border provision of occupational pensions.
*United Kingdom Corporation Tax
*Income tax in the United States
Category:Taxes by type