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Taxation New

  1. 1. <ul><li>Taxes are as old as civilizations </li></ul><ul><li>Taxes are imposed so that a government may perform its </li></ul><ul><li>Traditional functions (Defense and maintenance of law & order) </li></ul><ul><li>Undertake welfare and development activities, </li></ul><ul><li>Make provisions for public goods to satisfy collective needs of the people </li></ul><ul><li>Pay for its own administration </li></ul><ul><li>Taxation is one method of transforming money from private to public hands. </li></ul>There are only two things certain in life DEATH & TAXES TAXATION IN INDIA
  2. 2. Taxes in ancient India are found in Arthashatra the famous work of Kautilya ( also known as Chankya and Vishnugupta) During this regime taxes were levied both in cash and kind and were collected by local officers Major sources of revenue included land tax, octroi, taxes on liquor shops, gambling houses and on professionals like dancing girls. Just as the Sun extracts water from reservoir and gives it back as shower, so does the ruler extracts tax from his subjects and gives it back to them in the form of prosperity : Kalidasa the Sanskrit Scholar PRE-INDEPENDECE TAX SYSTEM IN INDIA
  3. 3. Taxes during Mughal period (Reign of Emperor Akbar and Aurangzeb) Important sources of revenue included land revenue, import and export duties and Jizya or (Zazia) Rate of Zazia during the rule of Aurangzeb PRE-INDEPENDECE TAX SYSTEM IN INDIA Income Level Per Year Rate of Zazia More than Rs.2500 48 dirhams ( or 13 rupees) Between 50 and 2500 rupees 24 dirhams (or 6.5 rupees) Between 53 and 250 rupees 12 dirhams (or 3.25 rupees) Less than 52 rupees Exempted
  4. 4. <ul><li>Taxes during British Rule </li></ul><ul><li>Tax system of British India reflected characteristics of a traditional agricultural economy </li></ul><ul><li>Revenues were dominated by custom duty (Import & Export) </li></ul><ul><li>Excise duties also added to the ex- chequer. This tax was introduced in </li></ul><ul><li>1894 </li></ul><ul><li>Income Tax was introduced in India by the British in 1860 to overcome </li></ul><ul><li>the financial difficulties. </li></ul><ul><li>Land Revenue </li></ul><ul><li>Sales tax was introduced in 1938, but it formed a very low component of </li></ul><ul><li>their revenue. </li></ul>PRE-INDEPENDECE TAX SYSTEM IN INDIA
  5. 5. <ul><li>India : A Federal Polity </li></ul><ul><li>Constitution of India adopted on 26-Nov-1949, became operative on 26-Jan-1950 </li></ul><ul><li>Provides two Layers of Government : Central & State </li></ul><ul><li>Taxation Powers of Central has been enumerated in List I </li></ul><ul><li>Taxation Powers of State has been enumerated in List II </li></ul><ul><li>Sharing of Central Taxes with State for the welfare of the States </li></ul>TAX STRUCTURE DEVELOPMENT IN INDIA
  6. 6. TAX STRUCTURE DEVELOPMENT IN INDIA Taxes within Union Jurisdiction as Enumerated in List I - Central Levy
  7. 7. TAX STRUCTURE DEVELOPMENT IN INDIA Taxes within State Jurisdiction as Enumerated in List II - State Levy
  8. 8. TAX STRUCTURE DEVELOPMENT IN INDIA <ul><li>Sharing of Central Taxes </li></ul><ul><li>Although the Taxation powers allocated to the Union and States are mutually exclusive </li></ul><ul><li>All the taxes and duties levied by the union are not meant entirely for the purpose of the union, </li></ul><ul><li>Revenues by the States are assigned to or shared with the States </li></ul><ul><li>Sharing of Central Taxes with State for the welfare of the States </li></ul>
  9. 9. TAX STRUCTURE DEVELOPMENT IN INDIA <ul><li>Sharing of Central Taxes </li></ul><ul><li>Recognizing the fact that the financial resources of the States may prove inadequate for undertaking welfare, maintenance, and development activities, </li></ul><ul><li>the arrangement relating to flow of funds from Centre to the State was made </li></ul><ul><li>Central Transfers are made through the three main channels. </li></ul><ul><li>Statutory transfers through the Finance commission </li></ul><ul><li>Plan transfers through Planning Commission </li></ul><ul><li>Discretionary transfers for centrally sponsored schemes, relief from natural </li></ul><ul><li>calamities, and relief and rehabilitation of displaced person. </li></ul>
  10. 10. TAX STRUCTURE DEVELOPMENT IN INDIA <ul><li>Tax – GDP Ratio </li></ul><ul><li>Objective : </li></ul><ul><li>Mobilize resources for the public sector to finance welfare and developmental plans </li></ul><ul><li>Interest for National policy makers and foreign aid donors </li></ul><ul><li>Foreign government and international organizations usually assess the efforts made by </li></ul><ul><li>recipient countries to raise resources domestically </li></ul><ul><li>Formula : </li></ul><ul><li>GDP Ratio = Total Tax Revenue (Central + State) </li></ul><ul><li> -------------------- </li></ul><ul><li> National Income </li></ul><ul><li>Stage of Economic development is the first and foremost determinant of Tax Ratio </li></ul><ul><li>Significance : </li></ul><ul><li>Relative share of government in the disposition of national income </li></ul><ul><li>Economic role of government in the national economy </li></ul>
  11. 11. TAX STRUCTURE DEVELOPMENT IN INDIA Tax – GDP Ratios suggested by the Twelfth Finance Commission for the Year 2009-10 - As % age of GDP Source : Report of the Twelfth Finance Commission (2005-10 ) Chairman - Dr. C. Rangarajan
  12. 12. TAX STRUCTURE DEVELOPMENT IN INDIA <ul><li>Direct versus Indirect Taxes : </li></ul><ul><li>Direct Tax : </li></ul><ul><li>A direct tax is one the ultimate burden of which falls on the person on whom it is levied </li></ul><ul><li>Tax than cannot be shifted from the original payer to someone else </li></ul><ul><li>E.g. : Income Tax, Wealth Tax and estate duty are generally considered direct taxes. </li></ul><ul><li>Indirect Tax : </li></ul><ul><li>Indirect tax which can readily be shifted to ultimate consumers of the </li></ul><ul><li>commodity or service taxed </li></ul><ul><li>Convenient to collect </li></ul><ul><li>Lacks equity Attribute </li></ul><ul><li>E.g. : Import duties, excise levies, sales tax, service tax, entertainment tax etc. are generally regarded as indirect tax </li></ul>
  13. 13. TAX STRUCTURE DEVELOPMENT IN INDIA Direct versus Indirect Taxes : Combined Tax Revenue, Breakdown Direct and Indirect Taxes with Percentage Shares:1950-51 to 2008-09 Source : Rearranged data from Government of India, Ministry of Finance, Indian Public finance Statistics, 2008-09, Table 1.2, calculation of % age on own
  14. 14. TAX STRUCTURE DEVELOPMENT IN INDIA <ul><li>Direct v/s Indirect Taxes : </li></ul><ul><li>Equity Implications : </li></ul><ul><li>Though of late, the share of direct taxes has increased they are still far </li></ul><ul><li>below the contribution made by indirect taxes </li></ul><ul><li>Indirect taxes do not allow considerations for personal circumstances of </li></ul><ul><li>taxpayers as do direct taxes. </li></ul><ul><li>With the growth of corporate sector and the rise in income levels, India is </li></ul><ul><li>showing signs of modernization, reflecting increased scope for direct taxes. </li></ul><ul><li>For widening the direct tax base, effective measures are needed to tap the </li></ul><ul><li>unincorporated industrial sector and the affluent agricultural class. </li></ul>
  15. 15. TAX STRUCTURE DEVELOPMENT IN INDIA Taxation Enquiry Commission, 1953-54 Appointed by Govt. of India on April 1, 1953 <ul><li>To examine the incidence of Central, State and Local taxation on the various classes of people </li></ul><ul><li>and in different States </li></ul><ul><li>To examine the suitability of the present system of taxation </li></ul><ul><li>To examine the effects of the structure and level of taxation of income on capital formation </li></ul><ul><li>and maintenance and development of productive enterprise </li></ul><ul><li>To examine the use of taxation as a fiscal instrument in dealing with inflationary or deflationary </li></ul><ul><li>situations </li></ul><ul><li>To make recommendations, in particular, with regard to </li></ul><ul><ul><li>Modifications required in the present system of taxation and </li></ul></ul><ul><ul><li>Fresh avenues of taxation </li></ul></ul>Composition of the Commission John Matthai Chairman Vaikunth L. Mehta Member V.K.R.V.Rao Member K.R.K.Menon Member B.Venkatappaih Member B.K.Madan Member INDIArjit Singh Secretary
  16. 16. TAX STRUCTURE DEVELOPMENT IN INDIA Taxation Enquiry Commission, 1953-54 <ul><li>The main findings of the commission’s study were : </li></ul><ul><li>3.6% of consumer expenditure was paid in indirect taxes by all households in the country. </li></ul><ul><li>Urban households paid twice the proportion of consumer expenditure paid in indirect taxes by </li></ul><ul><li>rural households </li></ul><ul><li>The commission dealt at length with the administration of income tax and found staggering </li></ul><ul><li>levels of tax evasion – To tackle this it suggested for maintenance of improved and </li></ul><ul><li>strengthening of the enforcement machinery </li></ul><ul><li>Important recommendations in terms of commodity coverage in the then existing </li></ul><ul><li>Excise System. </li></ul><ul><li>The levy of sales was made a central subject and thereafter a rationalized system of indirect </li></ul><ul><li>taxation of domestic production and consumption was administered by the Centre. (Which </li></ul><ul><li>we call today as Central Sales Tax Act, 1956) </li></ul>
  17. 17. TAX STRUCTURE DEVELOPMENT IN INDIA Indian Tax System, 1956 <ul><li>This was an extensive review of the Indian Tax system had already been undertaken by the Indian Taxation Enquiry Commission, 1953-54 </li></ul><ul><li>British Economist Nicholas Kaldor was appointed by Govt. of India for reviewing the Indian tax system particularly with reference to personal an business taxation. </li></ul><ul><li>Survey report includes </li></ul><ul><li>1) Tax loss to Government through tax evasion at Rs. 200 to Rs.300 cr. </li></ul><ul><li>2) System of direct taxation in India was both Inefficient and inequitable </li></ul><ul><li>Recommendations by the Economist to introduce: </li></ul><ul><li>Tax on Capital Gains </li></ul><ul><li>Wealth Tax </li></ul><ul><li>Expenditure Tax </li></ul><ul><li>Gift Tax </li></ul>
  18. 18. TAX STRUCTURE DEVELOPMENT IN INDIA Tax Reforms Committees, 1991 <ul><li>Based on the recommendations, listed below are the implementations </li></ul><ul><li>A system of indexation was introduced for the first time - Capital Gains </li></ul><ul><li>Flat rate of income tax on capital gains – 20% </li></ul><ul><li>Encouraging the tax payers to invest in productive assets such as shares, securities, bonds, bank deposits, mutual funds etc. - Exempted from wealth tax </li></ul><ul><li>List of items to be taxed under wealth tax </li></ul><ul><li>Some more items brought into the bracket of excise </li></ul><ul><li>Widening the net of service tax </li></ul><ul><li>Restructuring import tariff </li></ul>Composition of the Commission Raja J.Chelliah Chairman S.V.Iyer Member V.U.Eradi Member Amresh Bagchi Member V.Rajaraman Member Gautam Ray Secretary
  19. 19. TAX STRUCTURE DEVELOPMENT IN INDIA Tax Force on Direct Taxes, 2002 <ul><li>Important recommendations </li></ul><ul><li>Raising of exemption limit of personal income tax </li></ul><ul><li>Rationalization of exemptions, abolition of concessional treatment to long-term capital gains </li></ul><ul><li>Abolition of Wealth Tax </li></ul>Composition of the Commission Vijay L Kelkar Chairman Ashok Lahiri Member S.N.L.Agarwal Member Arvind Sonde Member Omkar Goswami Member A.J.Majumdar Secretary
  20. 20. TAX STRUCTURE DEVELOPMENT IN INDIA Tax Force on Indirect Taxes, 2002 <ul><li>Important recommendations </li></ul><ul><li>Central Excise procedure Simplification </li></ul><ul><li>Comprehensive Service Tax with change in threshold limit and change in rate </li></ul><ul><li>Implementation of Nation wide State level VAT </li></ul>Composition of the Commission Vijay L Kelkar Chairman Ashok Lahiri Member Jayanta Roy Member Sunil Kant Munjal Member Deepak Puri Member S.M.Bhatnagar Secretary
  21. 21. TAX STRUCTURE DEVELOPMENT IN INDIA Major Tax Implementation in India after Globalisation <ul><li>01-April-2003, had seen an major development in the history of Indian Tax. </li></ul><ul><li>Haryana was the first State to implement VAT in India, thereby substituting the erstwhile Sales Tax. </li></ul><ul><li>Eventually all the States started implementing Vat in their respective States from 01-April-2005. </li></ul><ul><li>Uttar Pradesh was the last State to implement VAT on 01-Jan-2008 </li></ul><ul><li>Key Features of VAT : </li></ul><ul><li>Uniform Tax Rates </li></ul><ul><li>Widening the Base </li></ul><ul><li>Higher Revenue Growth for State, there by improving the Economy </li></ul>
  22. 22. DIRECT TAX CODE <ul><li>Direct tax Code is proposed to be effective from 01-April-2011 </li></ul><ul><li>The code aims at comprehensive reforms in the sphere of personal and corporate taxation. </li></ul><ul><li>  One of the most important aspects of the DTC is that it will tweak the slabs to reduce the tax </li></ul><ul><li>burden on the middle class. According to the proposal the tax slabs will be as follows. </li></ul><ul><li>Income Level Percentage </li></ul><ul><li>Upto1.6 lacs Exempt </li></ul><ul><li>1.6 – 10 lacs 10% </li></ul><ul><li>10 --- 25 lacs 20% </li></ul><ul><li> Above 25 lacs 30% </li></ul><ul><li>  DTC would widen the tax scope on foreign companies. </li></ul><ul><li>Most of the changes are done based on the reports of Kelkar Committee. </li></ul>Major Tax Proposal in India after Globalization
  23. 23. Goods & Service Tax (GST) <ul><li>GST is proposed to be effective from 01-April-2011 (Dual GST – State and Central) </li></ul><ul><li>No Cascading effect, there would be only one Tax with two components CGST and SGST </li></ul><ul><li>below mentioned taxes would be subsumed under the two components. </li></ul>Major Tax Proposal in India after Globalization Dual GST