The document outlines the differences between direct and indirect taxes, explaining how direct taxes are paid directly to the government by individuals and businesses, while indirect taxes are levied on goods and services and paid by consumers. It emphasizes the importance of understanding these tax types for compliance with tax laws, and notes that both types are crucial sources of revenue for governments. The document also highlights specific types of taxes applicable in the UAE and the role of tax consultants in ensuring compliance.

1. Difference Between
DIRECT AND INDIRECT
Taxes

2. Direct taxes are paid by individuals or businesses
directly to the government, while indirect taxes are
levied on goods and services and paid by
consumers. It’s crucial for eligible people to comply
with the country’s tax laws and pay the applicable
taxes. Understanding the distinction between Direct
Tax and Indirect Tax is essential for taxpayers.
Taxes serve as a significant revenue source for
governments worldwide, collected in various forms
such as income tax on salaries, sales tax on
restaurant meals, toll fees for driving, or taxes on
groceries at stores. As responsible citizens, we have
a duty to fulfil our tax obligations and understand
the different tax types we encounter. Broadly, taxes
are categorised into Direct Taxes and Indirect Taxes.
In this blog, Shuraa Tax will help clarify the
differences between these two tax types.

3. Taxes are compulsory financial charges or levies imposed by a government on individuals or
entities to fund public expenditures and various governmental functions.
Most nations implement a tax system to finance public services, societal needs, and
government operations. Taxes can be levied at a fixed percentage on personal income, or
they may be progressive, increasing with higher income brackets.
Taxation is integral to a country’s economy, generating revenue for the government to invest
in infrastructure, education, healthcare, public safety, and more. Additionally, taxes can
shape economic behaviour by incentivising savings or investments through tax breaks and
discouraging detrimental activities like smoking by imposing higher taxes on tobacco
products.
In general, taxes can be categorised into two main types:
– Direct Taxes
– Indirect Taxes
UNDERSTANDING TAXES

4. Direct Tax Indirect Tax
UNDERSTANDING
DIRECT AND INDIRECT TAXES
DIRECT AND INDIRECT TAXES
Differentiating between direct and indirect taxes is crucial as they each have distinct economic
implications and impact individuals differently. Direct taxes directly influence a taxpayer’s disposable
income, influencing their spending, saving, and investment choices. In contrast, indirect taxes can
alter consumer behaviour by raising the prices of certain goods or services, potentially reducing their
demand.
Direct taxes are levies paid directly
to the taxing authority by the
taxpayer. For example, income tax is
directly paid to the government by
the taxpayer. Direct taxes cannot be
shifted to another individual or
entity. In most countries, the tax
authority oversees all tax-related
matters.
Indirect taxes are levied on the
consumption of goods and services. Unlike
direct taxes, these taxes are not directly
based on a person’s income. Instead, the
taxpayer pays the tax indirectly as part of
the purchase price of goods or services.
For instance, when buying a candy bar, the
price includes an indirect tax like a sales
tax, which the store collects and forwards
to the government.

5. SHOULD EVERYONE CONTRIBUTE TO BOTH
DIRECT AND INDIRECT TAXES
DIRECT AND INDIRECT TAXES
Absolutely, eligible individuals and businesses
should pay both types of taxes to finance
public services and investments. Eligibility is
determined by each country’s tax laws and
income sources. Governments collect direct
taxes on income and profits, and indirect taxes
on goods and services. Regular tax payments
are essential to avoid penalties.

6. Both direct and indirect taxes contribute
nearly equally to government revenue in
advanced economies. They fund public
services and investments and are structured to
generate revenue effectively. In 2020, the
International Monetary Fund (IMF) reported
that direct taxes made up 50.6% of total tax
revenues in advanced economies, while
indirect taxes accounted for 49.4%.
WHICH TAXES
DIRECT AND INDIRECT
DIRECT AND INDIRECT
ARE MORE VITAL TO THE ECONOMY?

7. WHICH TAXES
DIRECT AND INDIRECT
DIRECT AND INDIRECT
ARE MORE VITAL TO THE ECONOMY?
In the UAE, the primary direct and indirect taxes
include:
Corporate income tax: A 9% tax on businesses
will be implemented starting June 1, 2023.
1.
Value-added tax (VAT): On January 1, 2018, a 5%
VAT was introduced on most goods and services.
2.
Excise tax: Tobacco and energy drinks are subject
to a 50% excise tax, while carbonated drinks and
alcohol are subject to a 100% excise tax.
3.
Customs duties: Applied to certain imported
goods, with exemptions for some products.
4.

8. SERVICES
TAX CONSULTANCY
TAX CONSULTANCY
Tax consultants worldwide provide
valuable insights into various direct and
indirect taxes in the country, ensuring
compliance with government
regulations. Shuraa Tax stands out as a
leading firm in the UAE, offering
experienced tax consultants and agents
to global clients. Our corporate tax
specialists help businesses maintain tax
compliance with local laws and
regulations.

9. Thank You
Contact Us:
+(971) 44081900
shuraatax.com
info@shuraatax.com
106 Sheikh Zayed Road, 6th Floor, Aspin Commercial Tower – Dubai