Indirect Taxes:

These are taxes levied on goods and services. The burden of such taxes first fall on the manufacturers, wholesalers or importers who passed it on to the consumers through upward review of prices. Examples of indirect taxes are import duties, export duties, excise duties, value-added tax (VAT), and sales tax.

i) Import Duties: These are taxes levied on goods which are imposed from other countries. Apart from being a source of government revenue, import duties is also used to protect import substitution industries (ISIs) and to correct adverse balance of payments.

ii) Export Duties: These are taxes which are levied on goods that are exported to other countries. In West Africa, export duties are paid on agricultural products such as cocoa, cotton, rubber, cashew, etc.

iii) Excise Duties: These are taxes levied on goods which are manufactured within the country. In most West African countries, excise duties are paid on commodities such as soft drinks, cement, textiles, beer, cigarettes, plastic products, etc.

iv) Sales Tax: This is levied on goods as they are purchased by the consumer from the seller. The producer or seller adds the tax to the cost of the product especially for a commodity whose demand is price inelastic.

v) Value - Added - Tax (VAT): It is a consumption tax levied on business at every stage of production and distribution on the value they add to the raw materials and other inputs. The tax is borne by the final consumer of goods and services because it is included in the price paid. It has wide coverage as it applies to most goods and services. VAT was introduced in Nigeria in January 1994 to replace Sales Tax.

Some of the advantages of direct taxes over indirect taxes include that they are based on ability to pay and their collection is economical, especially with reference to PAYE method. On the other hand, a major disadvantages of direct taxes is that they can be easily evaded, whereas evasion rate is relatively low for direct taxes.