Consider the following statements with reference to taxation 1 Higher direct taxes help in controlli...........

Economic Affairs Tax System

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Consider the following statements with reference to taxation

1. Higher direct taxes help in controlling Inflation in the economy

2. Higher indirect taxes help in controlling the Inflation in the economy

Which of the above statements is/are correct?

1 only

2 only

Both

None

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Explanation:

Higher direct taxes will mean that the people will be left with smaller disposable incomes, lower disposable incomes do not generate higher demand. This causes the inflation to be controlled.
Whereas higher indirect taxes will increase the prices of the commodities because the cost of production will increase. This will lead to Cost-push inflation.