INDIRECT TAXES AN INTRODUCTION

INTRODUCTION Tax is the amount paid by persons staying within a territorial limit of a Sovereign state and is levied on individuals, goods, property, business, services etc. There is no direct quid pro quo between the tax payers and the public authority. It is used for public purposes Refusal to pay a tax is a punishable offence. A tax is payable regularly and periodically as determined by the taxing authority.

TAXATION OBJECTIVES KEY OBJECTIVES SUBSIDIARY OBJECTIVES

KEY & SUBSIDIARY OBJECTIVES REVENUE GENERATION Maintenance of Welfare State Prevention & concentration of wealth in a few hands Re-distribution of wealth for the common good Accelerate savings & investment Rapid economic development Generation of employment avenues

CLASSIFICATION OF TAXES  PROGRESSIVE TAXATION- A tax is called progressive when with increasing income, the tax liability not only increases in absolute terms, but also it increases as a proportion of income. Example- income tax.  PROPORTIONAL TAXATION(flat tax)- If the tax liability increases in the same proportion as the increase in the tax-payers income, it is known as proportional taxation. All incomes are taxed at a uniform rate. Eg- sales tax  REGRESSIVE TAXATION- With the increase in income, the tax rate decreases, in such regressive taxes. Eg- taxes on necessities  DEGRESSIVE TAXATION- In this case, there is a declining degree of progression as the tax base increases. The rate of tax increases up to a certain limit beyond which a uniform rate is charged.

DIRECT TAXES  Direct tax is a tax which is paid by the person on whom the tax has been imposed. It means that he cannot transfer the liability of tax on some other person.  The IMPACT and INCIDENCE of tax falls on the same person. The term IMPACT here means he who has to pay & INCIDENCE means who ultimately pays.  Examples are income tax, wealth tax, gift tax etc

INDIRECT TAXES  Indirect taxes are those taxes the burden of which by nature is shifted and which are paid by tax payer directly i.e. while purchasing goods and commodities, paying for services etc.  The Impact is on one person and incidence on another eg. Sales tax is paid by seller who collects it from buyer.  Examples are Central Excise Duty, Customs Duty, Central sales tax, Service tax, value added sales tax, octroi, interest tax.

FEATURES OF INDIRECT TAX  Shifting of tax burden  Basis of levy  No direct pinch to the taxpayer  Easier to collect, greater amount of generation of revenue, tax evasion is comparatively less.  Taxes directly affects the price of commodities.

DIRECT TAXES vs INDIRECT TAXES DIRECT TAXESINDIRECT TAXES 1) It contributes about 56% of total tax revenue It contributes about 46% of total tax revenue 2)They do not have any impact on costs and prices of goods Increase in rates of indirect taxes leads to increase in costs and prices of goods 3) Income tax, wealth tax, expenditure tax & corporation tax are the examples Central excise duty, customs duty, sales tax, service tax are the examples 4)These taxes confirm to the Principle of equity They donot discriminate between rich and poor. The levy is against the principle of equity

5)This tax is levied on income and wealth tax is tax levied on property/ assets of an assessee. Thus they donot affect those with low income/wealth The burden of indirect taxes fall on the rich and poor alike. They are taxes on consumption. Thus they affect lower income group. 6)They have an element of certainty. The taxpayer knows the amount of tax payable by him after claiming all deductions and rebates. Tax evasion is less likely in the case of indirect taxes 7)Direct taxes do not affect prices of goods and services Tax on Goods and Services increases its price and reduces demand