Taxes

CLASSIFICATION OF TAXES

            The taxes have been variously classified. Taxes can be direct or indirect, they can be progressive, proportional or regressive, and indirect taxes can be specific or ad-valorem.

DIRECT AND INDIRECT TAXES:

         

               The distinction between direct and indirect taxes is based on wheter or not the burden of a tax can be shifted wholly or partly to others. if a tax is such that its burden cannot be shifted to others and the person who pays it to the Govt. has also to bear it, it is called Direct Tax. Income tax, annual wealth tax, capital gain tax are exmaples of direct taxes. In case of a direct tax there is a direct contact between the tax payer and tax levying public authority.

              On the other hand, indirect taxes are those whose burden can be shifte to others so that those who pay these taxes to the Government do not bear the whole burden but pass it on wholly or partly to others. For instance, excise duty on the production of sugar is an indirect tax because the manufacture of sugar include the excise duty in the price and pass it on to buyers. Ultimately, it is the consumers on whom the incidence of excise duty on sugar falls as they will pay higher price for sugar than before the imposition of tax. Thus, though excise duties are on the production of commodities but they can be shifted to the consumers. An indirect tax (such as sales tax, a specific tax, value added tax (VAT), or goods and services tax (GST)) is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the consumer).In this sense, the term indirect tax is contrasted with a direct tax which is collected directly by government from the persons (legal or natural) on which it is 

         

         Direct  टैक्स वो टैक्स होते है जो सरकार जनता पर सीधे लगाती है और जो जनता सरकार को सीधे जमा करती है। जैसे इनकम टैक्स सीधा हमारे पर लगाया जाता है और हमे ही इसे सरकार को जमा करना होता है।

          Indirect  tax  वो tax  होता है जो उपभोक्ता से बिचौलिया वसूलता है और सरकार  को जमा करता है जबकि direct  टैक्स सरकार  सीधा व्यक्ति विशेष से वसूलती है। direct टैक्स को taxpayer  किसी और पर शिफ्ट नहीं कर सकता जबकि indirect  टैक्स को शिफ्ट किया जा सकता है। जैसे- हमने कोई सामान ख़रीदा और उसपर सेल्स टैक्स चुकाया तो जब हम वो सामान किसी और को बेचेंगे तो उसे हम जिस दाम पर सामान बेचेंगे उसमे सेल्स टैक्स भी include  करेंगे करेंगे इस प्रकार हम indirect टैक्स को हम दुसरे पर शिफ्ट कर सकते है।

SPECIFIC AND AD-VALOREM TAXES:

 Indirect taxes can be either specific or ad-valorem. A specific tax on a commodity is a tax per unit of the commodity, whatever its price. Thus the amount of total specific tax will vary in accordance with the changes in total output or sales of the commodity and not with the total value of output or sales. On the other hand, an ad-valorem type of indirect tax is levied according to the value of the commodity. For instance, sales tax in India is an ad-valorem tax as the rate of sales tax in case of several commodities is 10% of the value of sales of the commodities. Ad-valorem taxes are progressive in their burden on consumers whereas taxes are regressive.
                specific  टैक्स वो टैक्स होता है जो की प्रत्येक वस्तु पर per यूनिट के हिसाब से लगता है न कि  उसकी कीमत के हिसाब से।जैसे- मान लो की जुते पर specific  टैक्स लगा है 20 रू  है तो अब ये टैक्स हर जूते  पर सामान लगेगा चाहे उसकी कीमत कितनी भी हो। इसलिए कुल specific  टैक्स कुल उत्पादन के हिसाब से लगता है न कि  कुल उत्पादन के मूल्य के हिसाब से। जबकि ad -valorem टैक्स ऐसा indirect  टैक्स है जो की वस्तु की कीमत के हिसाब से लगता है।


PROGRESSIVE, PROPORTIONAL AND REGRESSIVE TAXES:

       Accordint to another classification, taxes can be progressive, proportional or regressive. In case of proportional tax, the same rate of the tax is charged, whatever be the magnitude of the base on which it is levied. For instance, if rate of income tax is 25% whatever the size of income of a person, it will then be a proportional income tax. Likewise, if rate of wealth tax is 5% , it will be proportional wealth tax. Thus, in case of proportional tax it is the rate which is fixed and not the absolute amount of the tax. Thus with the rate of 25 % proportional income tax, person with income of Rs. 25000 will pay Rs.6250 as the tax, and a person with income of 50000 will pay Rs. 12500 as the tax. Thus, even under proportional income tax, a richer person has to pay greater amount of tax though rate of the tax is same.
         On the other hand, in case of a progressive tax, rate of the tax increases as the amount of the tax base (income, wealth of any other object) increases. The principle underlying a progressive tax is that greater the tax base, the higher the tax rate. In India income tax, an important direct tax levied by the Central Government, is progressive. Its rate at present (2012-13) are 0 to 2 lakhs no tax, 2 lakhs to 5 lakhs 10%, 5 lakhs to 10 lakhs 20% and above 10 laksh 30%. Under progressive income tax, the richer person pays not only absolutely more tax but also higher rate of the tax. Thus, the burden of progressive tax falls more heavily on the richer persons as compared to proportional income tax.
         A regressive tax is opposite of a progressive tax. In case of a regressive income tax, the rate is lowered as the income rises. Thus, under regressive tax system, the burden of the rate is relatively more on the poor than on the rich.

Tax Structure in India

Distribution

• Some taxes are levied, collected and retained by the Centre. These include Customs Duty, Corporation Tax, Taxes on Capital (other than Agricultural Land) etc.
• Some taxes are levied and collected by the Centre but shared with the States. These include taxes on income other than agricultural income and union excise duties on goods included in Union List, excepting medicinal and toilet preparations.
• Some taxes are levied and collected by the Centre but the proceeds are to be distributed among States.
• These include succession and estate duties in respect of property other than agricultural land, terminal tax on goods and passengers, tax on railway fares and freights, taxes on transaction in stock exchanges and future markets, taxes on sale or purchase of newspapers and ads.
• Some taxes are levied by the Centre but collected and appropriated by the States. These include stamp duties other than included in Union List and excise duties on medicinal and toilet preparations.
• Taxes belonging to States exclusively are land revenue, stamp duty, etc.

Structure of Taxes in India

1. Direct Taxes India

• Include taxes on income and property, the important ones being Personal Income Tax, Corporate Tax, Estate Duty and Wealth Tax.
• Income tax is progressive in India, i.e., the rate of tax is not uniform but rises progressively with the rise in money income.
• During the last two decades, there has been a continuous reduction in the tax rate because high rates of income tax had merely encouraged tax evasion and growth in black money.

2. Indian Indirect Taxes

• Include Sales Tax, Excise Duties, Customs Duties, etc.
• The Government of India earns maximum from Union Excise Duty.

Financial Relations between Centre and States

• India possesses a federal structure in which a clear distinction is made between the Union and the State functions and sources of revenue. Our constitution provides residual powers to the Centre. Article 264 and 293 explain the financial relations between the Union and State Government.
• Although the States have been assigned certain taxes which are levied and collected by them, they also have a share in the revenue of certain union taxes and there are certain other taxes which are levied and collected by the Central Government but whole proceeds are transferred to the States.
• The Constitution provides residuary powers to the Centre. It makes a clear division of fiscal powers between the Centre and the State Governments.

(A) List – I of Seventh Schedule of the Constitution enlists the Union Taxes which are :

• Taxes on income other than agriculture income.
• Corporation tax.
• Custom Duties.
• Excise Duties except on alcoholic liquors and narcotics not contained in medical or toilet preparation.
• Estate and succession duties other than on agricultural land.
• Taxes on the capital value of assets except agricultural land of individuals and companies.
• Rates of stamp duties – on financial documents.
• Taxes other than stamp duties on transactions in stock exchanges and future markets.
• Taxes on sales or purchases of newspapers and on advertisements therein.
• Taxes on railway freight and fares.
• Terminal taxes on goods or passengers carried by Railways Sea or air.
• Taxes on the sale or purchase of goods in the course of interstate trade.

(B) List – II of Seventh schedule enlists the taxes which are within the jurisdiction of the States :

• Land revenue.
• Taxes on the sale and purchase of goods, except newspapers.
• Taxes on Agricultural Income.
• Taxes on land and buildings.
• Succession and estate duties on agricultural land.
• Excise on Alcoholic Liquors and Narcotics.
• Taxes on the entry of goods into a local area.
• Taxes on the consumption and sale of electricity.
• Taxes on mineral rights (subject to any limitations imposed by the Parliament).
• Taxes on vehicles, animals and boats.
• Stamp duties except those on financial documents.
• Taxes on goods and passengers carried by board or inland water – ways.
• Taxes on luxuries including entertainments, betting and gambling.
• Tolls.
• Taxes on professions, trades, callings and employment.
• Capitation taxation.
• Taxes on advertisements other than those contained in newspapers.

(C) Apart from taxes levied and collected by the States, the Constitution has provided for the revenues for certain taxes on the Union List to be allotted, partly or wholly to the States. These provisions fall into various categories :

• Duties which are levied by the Union Government but are collected and appropriated by the States. These include stamp duties, excise duties on medicalpreparations containing alcohol or narcotics.
• Taxes which are levied and collected by the Union, but the entire proceeds of which are assigned to the states, in proportion determined by the Parliament. These taxes include :
• Succession and Estate duty.
• Terminal Taxes on goods and passengers.
• Taxes on railway freight and fares.
• Taxes on transactions in stock exchanges and future markets.
• Taxes on sale and purchase of newspapers and advertisements therein.

• Central Taxes on income and union excise duties are levied and collected by the Union but are shared by it with the States in a prescribed manner.

Proceeds of additional excise duty on mill – made textiles, sugar and tobacco which are levied by the Union since 1957 in replacement of State sales taxes on these commodities are wholly distributed among the States in a manner as to guarantee their former incomes from the displaced sales taxes