introduction to taxes- meaning and definition of taxes; types of taxes; impact, incidence and shifting of taxes

1. INTRODUCTION TO TAXES

2. INTRODUCTION
Kalidas in Raghuvansh eulogizing KING DALIP said-
"It was only for the good of his subjects that he collected taxes from them,
just as the Sun draws moisture from the Earth to give it back a thousand
fold“.
A tax is a compulsory payment levied by any government on an
individual or organization in order to collect revenue for the public
interest and social welfare.
A tax is levied under the authority of law.
The law means statutory law or an Act of the legislature.
In India, taxes are imposed by the central government and state
governments.
Some minor taxes are levied by local authorities such as municipalities
and local governments.

3. MEANING AND DEFINITION OF TAX
 The most important source of revenue of the Government is taxes.
 Tax is a compulsory contribution to state revenue, levied by the
government on taxpayer’s income and business profits or value added to
the cost of some goods, services, and transactions.
 The act of levying taxes is called taxation.
 Tax is imposition of financial charge or other levy upon a taxpayer
by a state or other the functional equivalent of the state.
 Generally, Taxes can be classified into two types in India –
(a)Direct Taxes
(b) Indirect Taxes

4. MEANING AND DEFINITION OF TAX
DEFINITION
ACADEMICIANS
/ EXPERTS
Tax means a compulsorily collected donation from public which is used
for the benefit of all. Tax does not cater to individual needs
Selingman
Tax means a compulsory donation by public without any direct benefit
for such donation
Taylor
Tax is mandatory liability and it does not resemble any reciprocal or
proportionate benefit
Dr. Dalton
Tax is a compulsory payment levied by the government on individuals or
companies to meet the expenditure which is required for public welfare
Adam Smith
Taxes are the dues upon the people to the state treasury under the law
(which can be enforced) without getting reciprocal service which can be
shown directly and used to pay for general expenses
Rochmat Soemitro

5. TYPES OF TAXES
TYPES OF
TAX
On the basis of the relation
between the tax rate and
the tax base
Progressive
tax
Regressive
tax
Proportional
tax
On the basis of the
nature and incidence
of taxes.
Direct tax Indirect tax
On the basis of the
value and volume
AD
VALOREM
TAX
SPECIFIC
TAX

6. PROGRESSIVE VS PROPORTIONAL VS
REGRESSIVE TAX
 progressive tax—A tax that takes a larger percentage of income from
high-income groups than from low-income groups.
proportional tax—A tax that takes the same percentage of income from
all income groups.
regressive tax—A tax that takes a larger percentage of income from low-
income groups than from high-income groups.

7. AD VALOREM VS SPECIFIC TAXES
 Ad valorem is a latin phrase that translates to “according to the value.”
An ad valorem tax is an indirect tax charged as a percentage of the price of a
good or service.
A specific tax is an indirect tax charged at a fixed rate on sales of a good or
service.
Specific tax is also referred to as a per-unit tax.
 Specific tax will depend on the quantity sold (not price)

8. AD VALOREM VS SPECIFIC TAXES

SOURCE: www.tutor2u.net/economics

9. AD VALOREM VS SPECIFIC TAXES

SOURCE: https://www.civilsdaily.com/

10. DIRECT TAX
 A direct tax is a tax that you directly pay to the authority imposing the tax.
For instance, income tax is imposed by the Central government, and an individual
pay it directly to the government.
A taxpayer cannot transfer this liability to another entity or person.
They are progressive in nature- high rate of taxes for people having higher ability
to pay.
In India, CBDT (Central Board of Direct Taxes) which is governed by the
Department of Revenue is responsible for the administration of direct taxes.
The department is also involved in planning and providing inputs to the
government regarding the implementation of direct taxes.

11. INDIRECT TAX
 An individual pays indirect tax to the government but through an intermediary.
Indirect taxes are the taxes levied on goods and services on the basis of production, sale
or purchase of goods or provision of services, in the form of import and export duty, excise,
sales tax, value added tax (vat), service tax, entertainment tax, electricity duty, tax on
passenger fares and freights etc.
 An indirect tax is one that can be shifted by the taxpayer to someone else (consumer).
 Indirect taxes are also called consumption taxes.
They are regressive in nature because they are not based on the principle of ability to
pay.
All the consumers, including the economically challenged bear the brunt of the indirect
taxes equally.
The CBIC (central board of indirect taxes and customs) is mostly responsible for
handling indirect taxes in India.
 Just like CBDT, CBIC also works under the department of revenue.

12. IMPACT, INCIDENCE AND SHIFTING OF TAXES
 The term impact is used to define the point of the initial burden of the tax.
The impact of taxation when the tax is imposed. It is on the person who
pays the tax in the first instance.
 The term incidence relates to the final resting point of the tax.
 Tax incidence is about the one who bears the tax burden eventually.
 Tax incidence takes place at the end of the cycle. It is on the person who
finally bears the tax.
 Tax shifting refers to the act of transfer of the tax burden among involved
parties.
 Impact may be shifted but incidence cannot.
 Incidence is the end of the shifting process.

13. DIRECT VS INDIRECT TAX
Source: https://icmai.in

14. REFERENCES
 https://apps.irs.gov/app/understandingTaxes/whys/thm03/les05/
media/ws_ans_thm03_les05.pdf
 https://www.icsi.edu/media/webmodules/Reading%20Material%20
Indirect%20Tax.pdf
 https://www.drnishikantjha.com/booksCollection/Indirect%20Taxa
tion.pdf
 https://icmai.in/upload/Students/Syllabus2016/Inter/Paper-11-
Jan2021.pdf