Difference between Tax Impact and Tax Incidence (Interview Question)

 Impact and Incidence of Taxation

There is a critical and thin line of difference between tax incidence and tax impact, meaning of both is not tough to understand but many interviewers ask this question to know the basic and small concept of taxation. People prepare tough questions and miss the small but crucial concept which is the base of any subject. let's look at the concept of both one by one:

Tax Impact

1. It expresses the immediate result of or original imposition of the tax. For more  clarity, it is the Initial burdon of the tax

2. Impact occurs at the point of imposition

3. Impact of a tax falls upon the person from whom the tax is collected

4. The impact may be shifted

Tax Incidence

1. It refers to the location of the ultimate or the direct money burden of the tax. For more clarity, it is the ultimate burden of the tax

2. Incidence occurs at the point of settlement

3. Incidence rests on the person who pays it eventually

4. Incidence cannot be shifted.

For better understanding lets go through with example:

Suppose excise duty imposed on the soap. Its impact is on the producer in the initial as they are liable to pay excise duty to the government. But, the producer collects it from customers by raising the price of soap. It this case customer eventually pay tax and therefore incidence falls upon them