Direct taxation
                     DIRECT TAXATION
WHAT ARE DIRECT TAXES?
Direct taxes are one type of taxes an 
individual pays that are paid straight or 
directly to the government, such as income 
tax, poll tax, land tax, and personal property 
tax. Such direct taxes are computed based 
on the ability of the taxpayer to pay, which 
means that the higher their capability of 
paying is, the higher their taxes are.
Source: corporatefinanceinstitute.com
EXAMPLE OF DIRECT 
TAXES
As mentioned above, one good example of 
direct taxes is a person’s income tax. 
Usually, income tax is filed annually, 
although deductions from one’s salary can 
be done on a monthly basis. If, for example, 
an individual incurs tax amounting to 
$30,000 a year for his annual salary of 
$120,000, the $30,000 is his direct tax.
Source: corporatefinanceinstitute.com
TYPES OF DIRECT TAXES
INCOME TAX
It is based on one’s income. A certain 
percentage is taken from a worker’s salary, 
depending on how much he or she earns. 
The good thing is that the government is 
also keen on listing credits and deductions 
that help lower one’s tax liabilities.
Source: corporatefinanceinstitute.com
TRANSFER TAXES
The most common form of transfer taxes is 
the estate tax. Such a tax is levied on the 
taxable portion of the property of a 
deceased individual, including trusts and 
financial accounts. A gift tax is also another 
form wherein a certain amount is collected 
from people who are transferring properties 
to another individual.
Source: corporatefinanceinstitute.com
ENTITLEMENT TAX
This type of direct tax is the reason why 
people enjoy social programs like Medicare, 
Medicaid, and Social Security. The 
entitlement tax is collected through payroll 
deductions and is collectively grouped as 
the Federal Insurance Contributions Act.
Source: corporatefinanceinstitute.com
PROPERTY TAX
Property tax is charged on properties such 
as land and buildings and is used for 
maintaining public services such as the 
police and fire departments, schools and 
libraries, as well as roads.
Source: corporatefinanceinstitute.com
CAPITAL GAINS TAX
This tax is charged when an individual sells 
assets such as stocks, real estate, or a 
business. The tax is computed by 
determining the difference between the 
acquisition amount and the selling amount.
Source: corporatefinanceinstitute.com
ADVANTAGES OF DIRECT 
TAXES
Promotes certainty
 Promotes equality
Promotes elasticity
 Saves time and money
Source: corporatefinanceinstitute.com
DIRECT TAXES VS. 
INDIRECT TAXES
Direct taxes refer to taxes that are filed and 
paid by an individual directly to the 
government. Indirect taxes, on the other 
hand, are taxes that can be transferred to 
another entity. Therefore, the burden of 
paying them can be put on another person’s 
shoulders.
Source: corporatefinanceinstitute.com