Customs Duty and its Types

Unit v from premarhea

Registration of GST and Input Tax Credit

Registration & ITC from premarhea

GST and its Features

Gst and its features from premarhea

IGST

IGST from premarhea

INPUT TAX CREDIT

ITC from premarhea

Impact of GST on Import and Export

Impact of GST on import & export from premarhea

Calculation of Import Duty

Calcualtion of import duty from premarhea

Introduction to GST

Gst from premarhea

Indirect Tax

Indirect tax from premarhea

Disadvantages/Demerits of Indirect Taxes

1. High Cost of Collection: Indirect tax fails to satisfy the principle of economy. The government has to set up elaborate machinery to administer indirect taxes. Therefore, cost of tax collection per unit of revenue raised is generally higher in the case of most of the indirect taxes.

2. Increase income inequalities: Generally, the indirect taxes are regressive in nature. The rich and the poor have to pay the same rate of indirect taxes on certain commodities of mass consumption. This may further increase income disparities among the rich and the poor.

3. Affects Consumption: Indirect taxes affect consumption of certain products. For instance, a high rate of duty on certain products such as consumer durables may restrict the use of such products. Consumers belonging to the middle class group may delay their purchases, or they may not buy at all. The reduction in consumption affects the investment and production activities, which in turn hampers economic growth.

4. Lack of Social Consciousness: Indirect taxes do not create any social consciousness as the taxpayers do not feel the burden of the taxes they pay.

5. Uncertainty: Indirect taxes are often rather uncertain. Taxes on commodities with elastic demand are particularly uncertain, since quantity demanded will greatly affect as prices go up due to the imposition of tax. In fact a higher rate of tax on a particular commodity may not bring in more revenue.

6. Inflationary: The indirect taxes are inflationary in nature. The tax charged on goods and services increase their prices. Therefore, to reduce inflationary pressure, the government may reduce the tax rates, especially, on essential items.

7. Possibility of Tax Evasion: There is a possibility of evasion of indirect taxes as some customers may not pay indirect taxes with the support of sellers.

Advantages/Merits of Indirect Taxes

1. Convenient: Indirect taxes are imposed on production, sale and movements of goods and services. These are imposed on manufacturers, sellers and traders, but their burden may be shifted to consumers of goods and services who are the final taxpayers. Such taxes, in the form of higher prices, are paid only on purchase of a commodity or the enjoyment of a service. So taxpayers do not feel the burden of these taxes. Besides, money burden of indirect taxes is not completely felt since the tax amount is actually hidden in the price of the commodity bought. They are also convenient because generally they are paid in small amounts and at intervals and are not in one lump sum. They are convenient from the point of view of the government also, since the tax amount is collected generally as a lump sum from manufacturers or traders.

2. Difficult to Evade: Indirect taxes have in-built safeguards against tax evasion. The indirect taxes are paid by customers, and the sellers have to collect it and remit it to the Government. In the case of many products, the selling price is inclusive of indirect taxes. Therefore, the customer has no option to evade the indirect taxes.

3. Wide Coverage: Unlike direct taxes, the indirect taxes have a wide coverage. Majority of the products or services are subject to indirect taxes. The consumers or users of such products and services have to pay them.

4. Elastic: Some of the indirect taxes are elastic in nature. When government feels it necessary to increase its revenues, it increases these taxes. In times of prosperity indirect taxes produce huge revenues to the government.

5. Universality: Indirect taxes are paid by all classes of people and so they are broad based. Poor people may be out of the net of the income tax, but they pay indirect taxes while buying goods.

6. Influence on Pattern of Production: By imposing taxes on certain commodities or sectors, the government can achieve better allocation of resources. For example by imposing taxes on luxury goods and making them more expensive, government can divert resources from these sectors to sector producing necessary goods.

7. May not affect motivation to work and save: The indirect taxes may not affect the motivation to work and to save. Since, most of the indirect taxes are not progressive in nature, individuals may not mind to pay them. In other words, indirect taxes are generally regressive in nature. Therefore, individuals would not be demotivated to work and to save, which may increase investment.

8. Social Welfare: The indirect taxes promote social welfare. The amount collected by way of taxes is utilized by the government for social welfare activities, including education, health and family welfare. Secondly, very high taxes are imposed on the consumption of harmful products such as alcoholic products, tobacco products, and such other products. So it is not only to check their consumption but also enables the state to collect substantial revenue in this manner.

9. Flexibility and Buoyancy: The indirect taxes are more flexible and buoyant. Flexibility is the ability of the tax system to generate proportionately higher tax revenue with a change in tax base, and buoyancy is a wider concept, as it involves the ability of the tax system to generate proportionately higher tax revenue with a change in tax base, as well as tax rates.

Difference between Direct Taxes and Indirect Taxes

Direct Taxes

Indirect Taxes

Payer of tax and sufferer of tax one and same (i.e. impact and incidence on the same person)

Payer of tax not sufferer of tax whereas sufferer of tax is not paying directly to the Government (i.e. impact on one head and incidence on other head)

Income based taxes

Supply based taxes

Rate of taxes are different from person to person

Rate of duties are not differ from person to person

Entire revenue goes to Central Government of India

Revenue source to Central Government of India as well as State Governments (i.e. CGST and SGST)

Previous year income assessed in the assessment year

There is no previous year and assessment year concept

Central Board of Direct Taxes (CBDT) is an important part of Department of Revenue.

Central Board of Excise and Customs (CBEC) is an important part of Department of Revenue.

The Central Board of Excise & Customs is being renamed as the Central Board of Indirect Taxes & Customs (CBIC), after getting legislative approval.

Progressive nature.

Regressive nature.

Taxation Powers of union & State Government

In India, the constitution is Supreme and all laws and actions of the Government are sub-ordinate to it. The constitution provides that no tax shall be levied or collected except by authority of law.

The Structure of Government in India is federal in nature. As per article 1(1) of constitution, India shall be union of States. There is a bifurcation of powers between union and states. Government of India (Central Government) has certain powers in respect of whole country. Each state (and union territory) has certain powers in respect of that particular state (Union territory).

Indian constitution

India has a three-tier federal structure, comprising the following:-

(a) The Union Government

(b) The State Government

(c) The Local Government

The power to levy taxes and duties is distributed among the three tiers of Government, in accordance with the provisions of Indian Constitution. The constitution consists of a preamble, 25 parts containing 448 articles and 12 Schedules.

Provisions of constitution regarding taxation

The power to levy and collect taxes emerges from the constitution of India. The following are the significant provisions of the constitution regarding taxation:

1. Article 265: It states that no tax shall be levied or collected except by authority of law. In fact, it prohibits arbitrary collection of tax.

2. Article 246: The authority to enact law and levy taxes and duties is given by constitution vide Article 246. The Parliament may make laws for the whole of India or any part of the territory of India, the State legislature may make laws for whole or part of the State.

3. Seventh Schedule (to Article 246): The Seventh Schedule contains three lists which enumerate the matters under which the union and the State Governments have the authority to make laws.

(a) List I (Union List): The Central Government has the exclusive right to make laws in respect of any matter covered in this list. Parliament makes law in this regard. Some of the items in List I are defense of India, naval, military and air forces, atomic energy and mineral resources, central bureau of intelligence and investigation, railways, highways, currency, RBI, post office saving bank, taxes on income other than agricultural income, duties of customs, corporation tax, etc.

(b) List II (State List): It contains the matters in respect of which the State Government has the exclusive right to make laws. These matters include public order, police, local government, public health and sanitation, hospital, burials and burial grounds, cremation ground, libraries, water, fisheries, betting and gambling, etc.

(c) List III (Concurrent List): It contains the matters in respect of which both Central & State Governments have powers to make laws. This list includes criminal laws, criminal procedure, marriage and divorce, contracts including partnership, agency, bankruptcy and insolvency, trust and trustees, trade unions, industrial and labour disputes, etc.

Features of Indirect Taxes

 Features of Indirect Taxes

1. Taxable Event: The indirect taxes are levied on purchase/sale/manufacture of goods and provision of services.

2. Incidence & Impact: In case of indirect taxes, the incidence and impact fall on two different persons. It means the tax burden is shifted by the supplier to the buyer or recipient of goods or services.

3. Regressive Taxation: The indirect taxes do not depend on paying capacity as tax payable on commodity is same whether it is purchased by a poor man or rich person. Therefore, indirect taxes are regressive in nature. There are exceptions to this argument as higher taxes may be imposed on luxury goods.

4. Impact of Indirect Tax: The indirect tax on goods and services increases its price. This leads to inflationary trend.

5. Promotes Welfare: The harmful or sin products like alcohol, tobacco, etc. may be taxed at higher rate. This practice not only discourages consumption of such goods but also increases the revenue of the State.

6. Major Source of Revenue: In India, the contribution of indirect taxes to total tax revenue is more than 50%. Therefore, it is a major source of tax revenue for the Government.