Tag: indiantax

GST: Simplified

GST is a destination-based tax on consumption of goods and services. It is proposed to be levied at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as set off. In a nutshell, only value addition will be taxed and the burden of tax is to be borne by the final consumer. 

A few important points of consideration are given below: 

The tax would accrue to the taxing authority, which has jurisdiction over the place of consumption which is also termed as place of supply. 

1. The Existing Taxes that are proposed to be Subsumed under GST- 

The GST would replace the following taxes: 

(i) Taxes currently levied and collected by the Centre:

a. Central Excise duty 

b. Duties of Excise (Medicinal and Toilet Preparations) 

c. Additional Duties of Excise (Goods of Special Importance) 

d. Additional Duties of Excise (Textiles and Textile Products) 

e. Additional Duties of Customs (commonly known as CVD) 

f. Special Additional Duty of Customs (SAD) 

g. Service Tax 

h. Central Surcharges and Cesses so far as they relate to supply of goods and services 

(ii) State taxes that would be subsumed under the GST are: 

a. State VAT b. Central Sales Tax

c. Luxury Tax

d. Entry Tax (all forms)

e. Entertainment and Amusement Tax (except when levied by the local bodies) 

f. Taxes on advertisements

g. Purchase Tax

h. Taxes on lotteries, betting and gambling i. State Surcharges and Cesses so far as they relate to supply of goods and services. 

The GST Council shall make recommendations to the Union and States on the taxes, cesses and surcharges levied by the Centre, the States and the local bodies which may be subsumed in the GST. 

2. The Status of Tobacco and Tobacco Products under the GST Regime- 

Tobacco and tobacco products would be subject to GST. In addition, the Centre would have the power to levy Central Excise duty on these products. 

3.Type of GST proposed to be Implemented- 

It would be a dual GST with the Centre and States simultaneously levying it on a common tax base. The GST to be levied by the Centre on intra-State supply of goods and /or services would be called the Central GST (CGST) and that to be levied by the States would be called the State GST (SGST). Similarly, Integrated GST (IGST) will be levied and administered by the Centre on every inter-state supply of goods and services. 

4. Need for Dual GST-  India is a federal country where both the Centre and the States have been assigned the powers to levy and collect taxes through appropriate legislation. Both the levels of Government have distinct responsibilities to perform according to the division of powers prescribed in the Constitution for which they need to raise resources. A dual GST will, therefore, be in keeping with the Constitutional requirement of fiscal federalism.  

5. Authority to Levy and Administer GST-  Centre will levy and administer CGST and IGST, while states will levy and administer SGST.   

6. Benefits from GST-  Introduction of GST would be a very significant step in the field of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax and allowing set-off of prior-stage taxes, it would mitigate the ill effects of cascading and pave the way for a common national market. For the consumers, the biggest gain would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%. Introduction of GST would also make our products competitive in the domestic and international markets. Studies show that this would instantly spur economic growth. There may also be revenue gain for the Centre and the States due to widening of the tax base, increase in trade volumes and improved tax compliance. Last but not the least, this tax, because of its transparent character, would be easier to administer.  

7. Concept of IGST-  Under the GST regime, an Integrated GST (IGST) would be levied and collected by the Centre on inter-State supply of goods and services. Under Article 269A of the Constitution, the GST on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.  

8. Deciding Authority for levy of GST- The CGST and SGST would be levied at rates to be jointly decided by the Centre and States. The rates would be notified on the recommendations of the GST Council.  

Tax reforms must be implemented. To improve revenue performance factors like globalization, large informal sectors and policies of neighboring countries must be considered. 

The Indian Tax System

There are various references in History which act as evidence that taxation existed in olden times also. Some references are ‘Arthashastra’ by Chanakya, King Dalip’s regime and Caesar Augustus. The word “Tax” originated from “Taxation” meaning ‘an estimate’. These were imposed and collected on the trade of commodities or livestock in a disorganised manner. The importance of tax increased with time and became a source of government income and expenditure.

TAX STRUCTURE IN INDIA 

India has a well developed taxation structure. The tax system in India is mainly a three-tier system which is based between the Centre, State governments and the Local Government organisations. In most cases, these local bodies include the local councils and the municipalities. According to the Constitution of India, the Government has the right to levy taxes on individuals and organisations. However, the Constitution states that none has the right to levy or charge taxes except the authority of law. 

The tax structure in India is divided into two components: Direct Taxes (such as income tax) and indirect taxes (such as custom duty). 

I. Direct Taxes: Direct taxes are those taxes that are not shifted, that is, the incidence of which falls on persons who pay them to the government, the taxpayer. According to Article 265, each tax levied or collected has to be backed by an accompanying law, passed either by the Parliament or the State Legislature. 

The direct taxes in India are: 1. Wealth Tax- 

Wealth tax is one of the major direct taxes in India. It is also known as the Wealth Tax Act, 1957. This tax is applicable to all the citizens of India. Wealth tax is the cess levied on owned property. It applies to those who enjoy property ownership benefits. It is applicable to every property owner till he or she retains the ownership of that particular property. The tax paid on property depends entirely on the current market rate. In case the property is not generating any income, then also wealth tax has to be paid. 

2. Corporate Income Tax- 

Corporate income tax is levied in many different forms in India. Corporate Income Tax is primarily meant to be paid by domestic corporations. Domestic corporations in India pay a minimum income tax rate of 35 per cent along with a surcharge of 2.5 per cent. Corporate income tax is also applicable to foreign organisations that have their own economic bases working in the country. These types of corporations are required to pay tax on 40 per cent of their income along with a surcharge of 2 per cent. This surcharge goes as a reservation for funding the state‘s education. Corporate income tax is also applicable to all the people that are working for any corporation in or outside India. 

3. Personal Income Tax- 

This is the most common form of tax in India. The system of personal income tax in India is very similar to the taxation system in the United States of America. It is based on the personal income of an individual. If the annual income of an individual is under Rs. 1, 80, 000/- then he or she is exempted from paying any personal tax. There are further allowances made under the personal income tax domain for the physically handicapped and elderly. 

II. INDIRECT TAXES: An indirect tax is defined as a tax levied on goods and services rather than on income or profits. Given below are the indirect taxes imposed in India: 

1. Sales Tax- 

Sales tax is the tax levied by the State Government on goods bought and sold in the country. This policy is followed in most industrially developed countries in the world. The taxes levied under sales tax are not the same for all kinds of goods. 

2. Custom Duties-

Custom duties were introduced in India through the Customs Act in 1962. This duty was introduced with the aim of checking illegal exports and imports of goods. Taxes are charged for all the goods that are imported into the country, mainly to protect the industries in India. 

Shortcomings of Indian Tax System: 1. Canon of Justice: The increased activities of the Government of India to develop the infrastructure and economy indicate a regressive tax structure that is against the canon of justice. The lower and middle income groups have to bear more burden of taxation as compared to the higher income groups because the government tries to raise amounts by indirect taxation. 

2. Agricultural Income: Agricultural income is not taxed in India. Hence, there is a higher burden of taxes on the urban areas. 

3. Complex Tax Framework: India has a complex tax framework with contradictory tax exemptions. Efforts are being made by the IT Department to enhance and simplify transparency of the tax system to help the individual taxpayers by reducing their compliance costs. 

4. Removal of Tax Incentives: Tax exemptions are given to achieve the objectives of development but they promote rent seeking behaviour, contributing to the complex tax laws. Exemptions lead to tax leakage and tax abuse which makes the system counterproductive and dysfunctional. 

5. Refunds: Getting refunds of tax from the Income Tax Department is a difficult process. It should be made easier by easy accessibility through internet services and refunding electronically. 

6. PAN: The tax base must be increased by extending PAN to cover all citizens serving as a Citizen Identification Number. 

7. Monopolistic Power of Tax Officials: The tax officials operate within a geographical limit with ambiguously defined roles that leads to abusive behaviour on their part. A high degree of discretionary power and lack of adequate monitoring and reporting mechanisms leads to corruption. The tax officials misuse the rules of the government and extract illegal payments from taxpayers. 

8. Lack of Supervision: There is a lack of supervision and monitoring of officers and holding them accountable for their actions. There must be promotion and enforcement of ethical standards, merit based recruitments, promotion procedures and regular staff rotation schemes to prevent the creation of a nexus. 

9. Decrease in Tax Revenue due to Corruption: Corruption decreases tax revenue, which leads to a shortfall in the funds of the government. This forces governments to resort to public borrowing and public debt, thereby endangering fiscal sustainability. Corruption adds to the adverse effect over investment and growth. 

10. Broadening the Tax Base: The majority in India do not file personal income tax. To bring them into the tax net, the government adopted a “one-in-six” scheme under which an individual satisfies one out of six criteria. This measure has increased the number of individual income tax payers, but a lot needs to be done still. 

India was different from other countries as they were made by the Indian citizens without any sort of external interference. 

There are different types of taxes in India. The system of taxation in India is clearly vested in the hands of authorities such as the central government, state government and the local governments. The taxes that are levied by the central government are on personal income, central excise, custom duties and service tax.