What is the Main Difference Between Impact Incidence and Shifting of Taxation?

By K Balaji|Updated : November 9th, 2022

The main difference between impact incidence and shifting of taxation is that Impact incidence refers to the person who pays the tax whereas moving the tax burden by the payer to another individual is called the shifting of taxation. There are two types of shifting of taxation one is a single point, and the other is multi-point. Taxation is primarily used to generate revenue for government expenditures, but it can also be used for other purposes.

Difference Between Impact Incidence and Shifting of Taxation

Impact Incidence: The first resting point of a tax is its impact. For instance, the manufacturer is responsible for paying any excise duty levied on the manufacture of a good, even though the cost of the tax is ultimately passed along to the final consumer and included in the product's price. In this case, the manufacturer is affected while the consumer is affected by the incidence.

Tax Shifting: Shifting the burden (payment) of a tax from one person to another is known as tax shifting. For instance, in the GST scenario, the final recipient of the tax is the consumer rather than the producer. The manufacturer transferred the cost of the taxes to the final consumer.

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FAQs on Difference between Impact Incidence and Shifting of Taxation

  • The impact incidence reduces the net income of a person when he or she pays tax. The shifting of taxation occurs when the taxpayers move the tax burden to another person.

  • Single point and Multi-point shifting are the two types of shifting of taxation. Single points occur when the tax burden is shifted to only one individual, whereas in multi-point shifting, the duty of the tax payment gets shifted numerous times

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