Which of the following statements best captures the difference between direct and indirect taxes and their implications for income distribution?
1
Direct taxes, like income tax, are regressive as they increase with income, while indirect taxes, like VAT, are progressive as they are equally applied to all consumers
2
Direct taxes are levied on individuals and corporations based on their income, promoting equity, while indirect taxes are consumption-based and tend to be regressive, impacting lower-income groups more
3
Both direct and indirect taxes are progressive, promoting income equality in the economy
4
Indirect taxes are preferred in developing economies for their ease of collection, while direct taxes are avoided due to administrative complexities