- Major source of revenue: The indirect taxes are one of the major and most important contributor to tax as these are levied on the goods, services etc. Indirect taxes generates about 80% of tax revenue to the central and state governments, whereas direct taxes contribute only about 20%.
- Less collection cost: Compared to direct taxes, collection cost of indirect taxes is less. His is largely due to collection is done from the manufacturer or the processing unit and not from the large consumer base.
- Comparatively less tax evasion: Tax evasion is hardly possible because it is included in the price of the goods and services. This means that once the service provider or the manufacturer has paid the tax the consumers cannot evade from paying indirect taxes.
- Encourage industrial growth in undeveloped areas: Government can provide facilities and tax exemptions for starting the industrial units in backward areas. This will reduce cost of production and industrial units in backward area may become viable and get attracted.
- Promote and protect domestic industries: Tax concessions and tax exemptions can lower the price and increase the sale of domestic goods in Indian markets. Any increase in custom duty on import of goods and services make them costly compared to domestic product. Thus Indian industry may get protected.
- Regulate international trade: Imports and exports can be restricted by levy of custom duty. Protective duties and safeguard duties can be levied on imports in case specific product is affecting Indian industry.
- Easy collection: The collection for government is very convenient. It charges the tax from the retailer, seller, producer, manufacturer etc. who in turn collects the tax back from the consumers. Collection takes place automatically when goods are bought and sold. A dealer collects the tax when he charges a price. He is an honorary tax collector.
- No resistance from taxpayers: The consumers are not generally resistant to indirect taxes as they are wrapped in the price itself. The tax-payers do not feel the burden these taxes are paid in small amounts. Another major factor for lesser resistance is that it is either generally ignored or is paid only at the time of making a purchase.