The main disadvantages of direct taxes are as follows:
The great disadvantage of direct tax is that it pinches the payer. He 'squeaks' when a lump sum is taken out of his pocket. The direct taxes are thus very inconvenient to pay.
Direct taxes are taxes on honesty and so people try to evade them by concealing their income,
Another objection against direct taxes is that they are invariably levied arbitrarily by the government. No well-defined principles are considered while fixing the rates of taxes. This is against the spirit of social justice.
- Not suitable for Underdeveloped Countries:
Direct taxes are not suitable for Underdeveloped countries like Nepal, where the majority of people are below the absolute poverty line.
- Obstacles to Capital Formation: If the taxes are too heavy, they discourage saving and investment. In that case, the country will suffer economically.