Explanation: MERITS OF DIRECT TAXATION: Progressive in Nature: It is based on the ability to Pay Principle. So, it is an important tool to reduce inequalities of income and wealth.

• Elasticity: A direct tax can be varied according to the needs of the government as well as according to the changes in the income of the people. For example – if the income of the people rises, the government may increase the direct tax and vice versa.
• Certainty: A person liable to pay direct tax knows with certainty how much he has to pay and when he has to pay.
• Equity: It is generally progressive (based on the ability to pay principle). Through its rich people can be made to pay more taxes than poor. Similarly, in case of necessity, low-income people can be given relaxation and the super-rich can be made to pay more. Thus, an important tool to reduce income inequalities.
• Important Tool in Fiscal Policy: Taxes can be used to control inflation by increasing direct taxes during high inflation rate to reduce money in the hands of people to reduce demand. Similarly, taxes can be reduced during recession periods to boost demand.

Source: FORUMIAS