Demerits (or Disadvantages) : The following are the demerits of direct taxes.
(i) Unpopular: Since these taxes are directly imposed on people and cannot be shifted onto others, they are painful to the tax-payers. They are not popular among the people and therefore, are generally opposed by the tax-payers.
(ii) Inconvenience : The main drawback of direct taxes is that they cause a lot of inconvenience to the tax-payers. The tax-payers have to maintain accounts to the satisfaction of tax authorities and have to submit the statements of their income along with the sources of income from which it is derived. Sometimes, the tax-payers have to pay the entire amount of tax in one installment. Hence, these taxes are inconvenient to the tax-payers.
(iii) Possibility of Evasion : There is always a great possibly of tax evasion as these taxes are calculated on the basis of honesty of tax-payers. That is why, a direct tax is 'A Tax on Honesty' In India, there is a large scale of evasion of income tax on the part of businessmen. Businessmen usually adopt wrong practices and do not show their correct income to the tax authorities.
(iv) Uneconomical : Direct taxes are often expensive to collect. The cost of collection is particularly heavy when the number of tax-payers are large and each taxpayer pays only a small amount of tax. For example, in India land revenue is collected from millions of farmers in small amounts of money.
(v) Arbitrary : It is argued that the direct taxes are arbitrary. While determining the taxpayer's ability to pay, the Finance Minister makes use of his own value judgement. The evolution of direct taxation's gradation and progression has no scientific basis of formula.