Disadvantages of Direct Taxes

The main disadvantages of direct taxes are as follows:

1. Inconvenient:
   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.
2. Evadable:
   Direct taxes are taxes on honesty and so people try to evade them by concealing their income, 
3. Arbitrary:
   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.
4. 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.
5. Obstacles to Capital Formation: If the taxes are too heavy, they discourage saving and investment. In that case, the country will suffer economically.