WHAT IS TAX?
A tax is a "pecuniary burden laid upon individuals or property owners to support the government a payment exacted by legislative authority.” A tax "is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority" and is "any contribution imposed by government whether under the name of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name." In other words, Tax is imposition financial charge or other levy upon a taxpayer by a state or other the functional equivalent of the State. Important source of revenue for the Government.
WHY DO GOVERNMENTS IMPOSE TAXES?
Governments need funds for:
* Enforcement of law and public order.
* Protection of property.
* Development of economic infrastructure (roads, public works etc.) * Paying off the state's debt and the interest this debt accumulates. * Providing services like education systems, health care systems, pensions for the elderly, unemployment benefits etc. * Providing public utilities such energy, water and waste management. * Day to day functioning of the government.
* Defense preparedness.
* Providing foreign aid.
TAXATION IN INDIA
India has a well developed tax structure. The power to levy taxes and duties is distributed among the three tiers of Government, in accordance with the provisions of the Indian Constitution. The main taxes/duties that the Union Government is empowered to levy are:- * Income Tax (except tax on agricultural income, which the State Governments can levy) * Customs duties * Central Excise and Sales Tax * Service Tax. The principal taxes levied by the State Governments are:- * Sales Tax (tax on intra-State sale of goods) * Stamp Duty (duty on transfer of property) * State Excise (duty on manufacture of alcohol) * Land Revenue (levy on land used for agricultural/non-agricultural purposes) * Duty on Entertainment and Tax on Professions & Callings. The Local Bodies are empowered to levy :- * tax on properties (buildings, etc.) * Octroi (tax on entry of goods for use/consumption within areas of the Local Bodies) * Tax on Markets * Tax/User Charges for utilities like water supply, drainage, etc. In the wake of economic reforms, the tax system in India has under gone a radical change, in line with the liberal policy. Some of the changes include:- rationalization of tax structure; progressive reduction in peak rates of customs duty ; reduction in corporate tax rate; customs duties to be aligned with ASEAN levels; introduction of value added tax ; widening of the tax base; tax laws have been simplified to ensure better compliance. Tax policy in India provides tax holidays in the form of concessions for various types of investments. These include incentives to priority sectors and to industries located in special area/ regions. Tax incentives are available also for those engaged in development of infrastructure.TYPES OF TAXESTaxes are broadly classified into two types: * Direct Taxes * Indirect TaxesDIRECT TAXESTax paid directly to the government by the persons on whom it is imposed. The incidence of Direct Taxes cannot be shifted from one taxpayer to another. * Income Tax * Wealth Tax * Gift Tax * Corporate TaxINDIRECT TAXESIndirect Taxes are the taxes in which of burden of paying the tax is shifted through a change in price. They are levied on the production or consumption of goods and services or on transactions, including imports and exports. Some of the major indirect taxes levied by the Central and State Governments are : * VAT * Custom Duty * Excise Duty * Service TaxMERITS AND DEMERITS OF DIRECT TAXESMERITS1. EquityThere is social justice in the allocation of tax burden in case of direct taxes as they are based on the principle of ability to pay. Persons in...
Please join StudyMode to read the full document