This question was popular among the students and they scored above average marks. Majority of the candidates who attempted this question were able to clearly distinguish between direct and indirect taxes with relevant examples but could not really highlight the advantages of indirect taxes to developing countries.
These candidates were expected to state thus to score maximum marks in this question.

(a) Direct taxation refers to taxes on income and properties of individuals and organizations e.g. personal income tax, profit tax.

On the other hand, indirect tax refers to taxes on goods and services e.g. excise duties, custom duties, etc.

(b) (i) In developing countries where incomes are generally low, indirect taxes yield more revenue to the government.

(ii) Where unemployment is high, indirect taxes yield more revenue.
(iii) It is cheap and easy to collect, e.g. custom duties.
(iv) It has a wider coverage than direct tax.
(v) It is not easy to evade. Consumers pay as they consume the commodities.
(vi) It is not a disincentive to work.
(vii) It is used to discourage consumption of harmful goods.
(viii) It is used to protect infant industries.
(ix) It is used to correct balance of payments deficit.
(x) It is used to prevent dumping.