1. Four Merits of Direct Taxes 

1. Equitable: Direct taxes are based on the canon of equity. Their burden is equitably distributed, as they are progressive in nature. As the income of a person increases, the rate of income tax also increases. So all direct taxes fall heavily on the people whose income and wealth is increased. The poor are not affected by such taxes. 

2. Certain: Direct tax satisfy the canon of certainty. Taxpayer is certain as to the time and manner of payment, and the amount of taxes to paid in the case of these taxes. Similarly, the government is also certain as to the amount of money it shall receive from these taxes. 

3. Economical: These taxes also satisfy the canon of economy. The cost of collection of direct taxes is low. In the case of income tax, it is deducted at the source from the salaried persons. The same officers can make the assessment of wealth, incomes, inheritances, gifts, etc. No separate staff is needed for each. Such taxes are also economical to the tax payers who make payment direct into the treasury. 

4. Elastic: Direct taxes are flexible and thus satisfy the canon of elasticity. The government can increase or decrease the rates of direct taxes according to the requirements of the economy. In case of war, natural calamities or emergency, the State can raise the rates of these taxes in order to raise large tax revenue. During a depression, it can reduce their rates considerably.

2. Three Demerits of Indirect Taxes

1. Uncertain revenue: The revenue from indirect taxes is uncertain because it is not possible to accurately estimate the effort to such taxes on the demand for products. If a heavy excise duty is levied on some luxury articles, its sale may be adversely affected by a fall in demand and the State revenue may actually decline. 

2. Regressive: Indirect taxes on necessaries, which are consumed by the poor are regressive in nature. The rich and the poor are required to pay the same amount of tax on such commodities as matches, kerosene, toilet soap, washing soap, toothpaste, blades, shoes, etc. but the burden is heavirer on the poor than on the rich. Thus they do not satisfy the canon of equity. 

3. Uneconomical: These taxes are uneconomical in the sense that the cost of collection to the State is heavy. The State has to appoint inspectors to check the accounts and stocks of producers, wholesalers, and retailers in order to find out weather they are paying taxes or not. Thus they are more expensive than direct taxes.