PRESENTED BY: Rahul B 6

Vikram J 18

Vishal K 22

Ashwin K 25

Laxman M 33

Ramya N 42

Amol P 43

Chirag P 45

THE IMPORTANCE OF INDIRECT TAXES

INTRODUCTION TO TAXATION

Tax derived from the phrase “taxation” which means “estimate”

It refers to payment made to the government in the form of money to provide public goods and services for the benefit of the society in the State.

Historically , every civilization has found various methods of taxation system.

Taxes were collected in the form of gold-coins, cattle, grain, raw materials and also some times by rendering personal services.

INDIAN TAX SYSTEM

In India there has been a reference of the tax system by Manu in his Smrithi’s and in Arthasastras

The collection of taxes are based on the ratio of distribution of revenue as per the Indian Constitution.

The center and the state will distribute the revenue based on the collection through the “Union List “ and the “State List”

TAXATION IN INDIA

Tax is nothing but money that people have to pay the Government, which is used to provide public services.

It is a compulsory contribution imposed by a public authority.

Tax is a means of resource mobilization - highly dependable and no strings attached.

Instrument for transferring purchasing power from individual to government.

CLASSIFICATION OF TAXES IN INDIA

DIRECT TAXES

It is to be paid by the people directly to the State.It is collected from individuals, companies and organizations etc

INDIRECT TAXES

Indirect Taxes are collected through the manufacturers of products and services. It is imposed on the traded items.

COMPARATIVE STATUS

Note: Figures in percentages of total Tax RevenueSource: Indian Economy, Ruddar Datt and

Sundhararam, 2004

1950-51 1990-1991 2003-04

Indirect Tax

57% 84% 62%

DIFFERENCE IN TAXES

Directly paid by the persons on whom it is legally imposed

Indirectly paid by the other persons

Impact is on the same persons who pays the tax

Impact is on many persons

Tax burden cannot be shifted to other persons and the consumer directly pays the tax to the local Government, State

government, Center Government.

Tax burden can shift to the other persons (other than the payee).

Examples: Income tax ,house property tax, land and estate tax or service tax

Examples: Consumption taxes, excise duties, sales tax, octroi.

INDIRECT TAXES An Indirect tax is a charge that is levied on goods and

services. Some significant indirect taxes are GST , sales tax, excise tax, stamp duties and expenditure tax.

Indirect taxes are not levied on individuals, but on goods and services. Customers indirectly pay this tax in the form of higher prices.

An indirect tax can also be defined as the charge that is paid by one individual at the beginning ,but the burden of which will be passed over to some other individual, who eventually holds the burden.

The indirect taxes in India are enforced upon different activities including manufacturing, trading and imports. Also TRU (Tax Research Unit) is the Govt. body concerned with Indirect Taxes.

TYPES OF INDIRECT TAXES

Customs Duty

Excise Tax/Duty

Service Tax

Expenditure Tax

Goods And Service Tax ( GST )

Expenditure tax

CUSTOMS DUTY

Collected by the Central Government on every product imported into or exported from India.

The Duty is equal throughout India. It is a percentage of the assessed value of the product being imported/exported.

Peak basic rate for industrial products is 15%, for non – agricultural products is 10% and on import of medical equipment is 7.5%

The main objectives of levying Customs Duty :-

a) Restrict imports and preserve foreign exchange,

b) Protect domestic industries from undue competition,

c) Regulate exports,

d) A revenue generation mode under Indirect Taxes for the Government.

Customs duties in India are administrated by Central Board of Excise and Customs under Ministry of Finance.

EXCISE TAX

A tax levied on a manufacturer on the production or sale of goods produced within the country.

It is collected by Central and State Governments.

Goods must be movable, marketable and manufactured within the country to be liable under Excise Tax.

Excise Tax is primarily levied on tobacco, narcotics, alcohol, gambling and other products tagged socially harmful by the government.

“Excluded excisable goods” are produced in SEZs. They are not charged Excise Tax but not considered exempted either.

CRITICISM AGAINST EXCISE DUTY

Most products attract excise tax of 16%. Some products also attract special excise duty of 8% above existing 16%.

Considered as the government’s way of levying unnecessary tax on the existing population.

Excise is somewhat similar to other applied indirect taxes and hence manufacturers and, invariably, customers, might end up paying twice the tax amount on a single solitary product.

Excise Tax applied on drugs includes medication and pharmaceuticals in India. This leads to inflation and increased cost of life – saving medication.

SERVICE TAX

Service Tax is a form of indirect tax imposed on specified services called "taxable services".

It is levied at the rate of 10% (+ 2% educational cess) on the certain identified taxable services in India.

Services exempted from this tax are clinical trials of new drugs, Resident Welfare Associations who contributed Rs. 3000/- or less for services rendered, services by technology business incubators.

The objective behind levying service tax is to reduce the degree of intensity of taxation on manufacturing and trade without forcing the government to compromise on the revenue needs.

EXPENDITURE TAX

Also referred to as CONSUMPTION TAX.

Tax allocated based on the rate of spending, instead of the income earned

Wealthier are beneficiaries whereas poor and working classes are hard hit.

To address this issue, adjustment mechanisms would

need to be built in to the tax reporting process for people with lower incomes.

Drawback:The downside to this type of taxation model is

that it is effectively a tax on labour

Benefit:The major benefit for this type of tax scheme is

the removal of double taxation.

GST (Goods & Service Tax)

A tax on goods and services with comprehensive and continuous chain of set-off benefits from the producer’s point and service provider’s point up to the retailer’s level.

A major improvement over the previous system of VAT & central disjointed service tax.

GST will benefit the following :-

A. Agricultural Sector

B. Small Entrepreneurs

C. Exports Sector

D. Manufacturing & Retail Sector

E. Etc.

The inception of GST would reduce cost of goods and lead to encompassing of the following :-

a) VAT/Sales Tax,

b) Central Excise & Additional Excise Duties,

c) Statewise Entertainment Tax,

d) Central & State Surcharges & Cesses,

e) Luxury Tax, etc.

Recent reports have stated that GST will be levied centrally at 16% on companies with annual turnover of Rs. 10 lakhs and more.

PROBLEMS WITH INDIRECT TAXES

At the moment, if you're taxed in one state you cannot claim tax credits in another.

There is no complete pass through of tax because of an inadequate system of tax credits. Breaks in the tax credits chain create cascading taxes.

Indirect taxes are a revenue gathering strategy in many countries with a tendency amongst competing nations to reduce corporate taxes to attract investment and shore up shortfall by either rationalizing or increasing indirect taxes.

ADVANTAGES OF INDIRECT TAXES

Convenience Indirect taxes are convenient to the tax payers and the

State both .

Elasticity With proper adjustments indirect taxes are elastic sources

of revenue. If they are imposed on commodities of wide consumption, the revenue from them can increase to a great extent.

Difficulty of evasion Ordinarily, indirect taxes cannot be easily evaded. They

are included in the prices of commodities and every time a commodity is purchased, the purchaser pays the tax.

THANK YOU!!