IRJMST Vol 6 Issue 12 [Year 2015] ISSN 2250 1959 (0nline) 2348 9367 (Print)

A Project Report on Tax Awareness and Perception of the Masses

Ms. Rajat Arora

ABSTRACT

This project is an outcome of an exploratory research carried out to understand the perceptions and
awareness of taxation in India. Sound knowledge about taxation policies of the country is necessary
to avoid tax frauds on account of indirect taxes as well as for compliance to tax laws.
While direct taxes influence only income earners but indirect taxes influence every common citizen
making taxation an issue of great social impact. The issue holds high relevance and significance in
the light of rampant tax evasion in the country and growing debate on its complicated taxation
policy.
The project involves study of the Indian tax structure in terms of the perceptions and awareness of
the masses.
PRIMARY OBJECTIVES
To find out the awareness levels of the masses(in general and across genders) with regard to taxes
they encounter in their day to day lives
To study if there is a significant relationship between gender or age and tax awareness
To find out the significant perceptions and beliefs of the masses with regard to taxation
laws of the country
SECONDARY OBJECTIVES
To compare Indian tax structure to tax structures of other developed and developing countries.
To study the merits and demerits of present taxation policy of the country,
To study reasons behind rampant tax evasion in the country and suggest improvements in the system.
RESEARCH METHODOLOGY
Our research is exploratory in nature as we try to explore the perceptions people hold about
the Indian taxation policy and assess their awareness with regard to the taxes they encounter and pay
in everyday lives.The research presented hereby is directed towards people of
differentdemographics.
Thus, our research relies on primary research which has been collected by the way of an online
survey. The secondary data on the topic was collected from over the internet and relevant newspaper
and magazine articles.
After data collection, the analysis of the data hence collected was done using various statistical tests
in SPSS software and excel.
DATA COLLECTION

In our project we have made use of both primary as well as secondary data.
Primary datawas collected through a questionnaire. A questionnaire was prepared consisting of 14
questions and 223 respondents filled the questionnaire. During this process, contact was made with
the respondents, questionnaires administered and data recorded. The questionnaires were
administered through online surveys; hence, all processes were automated. Questionnaires were sent
to the respondents through emails; links on social networking sites such as Facebook, LinkedIn and
Whatsapp etc. Therefore, informationcollected was authentic and validated.
Secondary data has been collected mostly from the internet. Relevant newspaper and magazine
articles have also been referred to.
SAMPLING
Random samples were chosen from different age groups. We used

International Research Journal of Management Science & Technology

http://www.irjmst.com Page 12
IRJMST Vol 6 Issue 12 [Year 2015] ISSN 2250 1959 (0nline) 2348 9367 (Print)

online (Google docs) as the medium for collection of data. A total of 223 questionnaires were filled
in order to come at an outcome.
During the research the contact was administered using online forms and thus no area based
sampling was done. Also the nature of the project did not require an extensive area sampling.
INTRODUCTION
Many developing countries have embarked on tax reforms in recent years. Such
reforms were motivated both by local factors as well as by rapid internationalization of
economic activities. The need to correct fiscal imbalances and the transition from a centralized plan
to a market economy were the important local factors hastening tax reforms. Difficulties in
compressing expenditures necessitated that tax system reform take an important role in fiscal
adjustment strategy. The transition from plan to market required the substitution of administered
prices with market determined prices, the replacement of physical controls with financial controls,
and the substitution of public enterprise profits with tax revenues.
Likewise, tax reforms become imperative in a globalizing environment. Enhancing competitiveness
and attracting foreign investment require minimizing both efficiency and compliance costs of thetax
system. Globalization also involves loss of revenue from customs, which needs to be replaced with
domestic taxes.
The Indian tax system too had to be reformed in response to changes in development strategy.India
has a well-developed taxation structure. The tax system in India is mainly a three tier system which
is based between the Central, State Governments and the local government organizations. In most
cases, these local bodies include the local councils and the municipalities. According to the
Constitution of India, the government has the right to
levy taxes on individuals and organizations and every tax charged needs to be backed by the
law passed by parliament. Taxes consist of direct tax or indirect tax, and may be paid in money or as
its labour equivalent (often but not always unpaid labour).
Indian Taxation System has the following structure:

SIGNIFICANCE OF TAX IN DECISION-MAKING

Tax is considered to be a significant factor in decision-making and vital to the health of
business. It is an important determinant of investment climate in India. As the Government
seeks to hasten the pace of liberalisation, the message that seems to be emerging is that while foreign
investment will continue to flow into India on account of its inherent economic advantages, tax
constitutes an important part of decision making, and not dealing with tax issues appropriately could
have adverse consequences.
Management decisions in all areas of responsibility have the common goal of maximizing
longtermwealth by cash flow enhancement. This decision making involves identifying and analysing
alternative courses of action, including after-tax cash flows. Since the amount and timing of income

International Research Journal of Management Science & Technology

http://www.irjmst.com Page 13
IRJMST Vol 6 Issue 12 [Year 2015] ISSN 2250 1959 (0nline) 2348 9367 (Print)

tax can vary significantly between alternatives, the impact of taxes should always be considered in
the decision-making process of all managers.
Transfer Price is the price at which divisions of a company transact with each other. Transfer
prices are used when individual entities of a larger multi-entity firm are treated and measured as
separately run entities.
To some extent, this problem is not peculiar to India alone. However, the recent transfer pricing
audits with a potential adjustment of USD10 bn reflects the heightened concern in the taxpayer
community as to whether transfer pricing is viewed by the Government solely as a tool to ensure that
a fair arms length price is charged in inter-company transactions.
The fact that most transfer pricing adjustments have a potential for economic double taxation
accentuates this concern. Perhaps the lesser concern shown by respondents towards indirect taxes is
due to the perception that indirect tax liability is borne by customers or alternatively set-off against
input credit.

International Research Journal of Management Science & Technology

http://www.irjmst.com Page 14
IRJMST Vol 6 Issue 12 [Year 2015] ISSN 2250 1959 (0nline) 2348 9367 (Print)

TAX EVASION

Tax Evasion is an illegal practice where a person, organization or corporation intentionally

avoids paying his/her/its true tax liability. The reduction of tax liabilities by not informing the
Revenue of all relevant facts is illegal and criminal penalties apply, hence, if caught evading tax the
director/s of the company is heavily fined and serious actions are taken.
Tax evasion and avoidance has become a major problem in developing countries like India. In a
recent survey and stepped up efforts by the Finance Ministry to check revenue leakage haveresulted
in a detection of evasion of over Rs. 2,158 crore in direct and indirect taxes in the lastquarter of
2012-13 and according to the reports, only 2 to 3 percent of Indians pay income tax.
The detection came through a unique initiative of online monitoring system of suspicious
transactions, named 'Virtual Office', which was set up by the ministry earlier this year for
realtimecoordination among revenue intelligence agencies and dissemination of various inputs
pertaining to movement of illegal funds.
Tax Evasion practices include:
Under-reporting, Bribery of Tax Officials ,Refusal to pay,Lobbying of Governments to reduce tax
liability or effective incidence of Tax system,Lobbying via international Institutions (IMF, World
Bank, World Trade Organization) to achieve effects.
Major reasons for Tax evasion in India include:
Weak surveillance system,Rampant corruption in tax department,Complicated tax laws and filing
mechanism,Tax deductions offering loopholes to tax evaders,Absence of social security system,Tax
rates are too high,Lack of transparency in government expenditure
Wrong interpretation of tax laws,Low incomes,Informal cash economy,Low organized sector
employment,High mobility of residence and capital for large businesses,
multinationalCorporations(MNCs) and high net worth individuals (HNIs).
INTRODUCTION OF GST AND DTC-A SIGNIFICANT CHANGE IN THEINDIAN
TAXATION SYSTEM
Goods and Service Tax is a tax on goods and services. It is leviable at each point of sale orprovision
of service. At the time of sale of goods or providing the services the seller or serviceprovider can
claim the input credit of tax which he has paid while purchasing the goods orprocuring the service.
This is simply very similar to VAT.It can be termed as National level VATn Goods and Services.
The rate of tax on goods and services are generally the same.A GST classically entails unification of
all levies on goods and services. In the Indian context, thiswould mean merging the following:
Tax on manufacture of goods (excise duty levied by the Centre).
Tax on sale of goods (CST / VAT levied by both Centre and states).
Tax on services (levied by Centre and to some extent by states such as Entertainment
tax, electricity cess, etc).
Introduction of DTC and GST will mark a watershed. These reforms will result in moderation
of rates, simplification of laws and better compliance.
Union Finance Ministers Budget Speech 2011-12
The Indian tax system is expected to witness a paradigm shift with the introduction of the DTC
and GST. Both legislations currently being deliberated by Government Committees, seek to
eliminate distortions in tax structure by providing greater simplification, reducing the scope for
litigation and improving compliance.It will help to spur economic growth, which has been

International Research Journal of Management Science & Technology

http://www.irjmst.com Page 15
IRJMST Vol 6 Issue 12 [Year 2015] ISSN 2250 1959 (0nline) 2348 9367 (Print)

declining over a year owing to various global and domestic factors.

Implementation of GST in India is required for the following reasons:
In Indian economy the service sector contributes over 55%.

Separate taxation of goods and services is neither viable nor desirable

Value added in manufacture and sale of goods require inputs of both goods and

services and vice versa, which is often not separable

THE LIKELY GST MODEL TO BE IMPLEMENTED IN INDIA:

Dual GST : Central GST & State GST
Destination based State GST
Common Base
Uniform Classification
Uniform Forms Returns, Challans etc.
No cascading of Central and State taxes
Cross credit between Centre and State not allowed
Tax levied from production to consumption

HOW THE WORLD HAS ADOPTED GST?

More than 130 countries have introduced GST in some form. It has been a part of the tax
landscape in Europe for the past 50 years. It is fast becoming the preferred form of indirect tax
in the Asia-Pacific region. It is interesting to note that there are over 40 models of GST currently
in force, each with its own peculiarities.
While countries such as Singapore and New Zealand tax virtually everything at a single rate,
Indonesia has five positive rates, a zero rate and over 30 categories of exemptions. In China,
GST applies only to goods and the provision of repairs, replacement and processing services.

International Research Journal of Management Science & Technology

http://www.irjmst.com Page 16
IRJMST Vol 6 Issue 12 [Year 2015] ISSN 2250 1959 (0nline) 2348 9367 (Print)

It is only recoverable on goods used in the production process, and GST on fixed assets is not

recoverable. There is a separate business tax in the form of VAT.

CORPORATE TAX IN INDIA

Tax rates for companies in India are among the highest in the world and the number of payments is
also more than the global average, putting the country at a low 158th rank on the Paying Taxes 2014
list, which investigates and compares tax regimes across 189 economies worldwide, ranking them
according to the relative ease of paying taxes. According to the report, the total tax rate in India can
be as high as 62.8 per cent, there are as many as 33 payments under the head of profit, labour and
other taxes, and the time taken to comply with taxation requirements could be as much as 243 hours.
On a global average, a company takes 268 hours to pay taxes, makes 26.7 payments and has a total
tax rate of 43.1 per cent. India was placed 158th position in the overall ranking of paying taxes.On
the positive side, India is the only economy of South Asia (of eight) with a complete onlinesystem
for fling and paying taxes.

COMPLEXITY IN THE INDIAN TAX SYSTEM

According to an Ernst and Young Report, Managing Indirect Tax in Rapid Growth Markets; China,
Brazil and India are the most challenging countries to deal with due to their complex indirect tax
systems. The report listed other issues related to VAT/GST in India. Multiple statemand/or local
consumption tax systems within India are frequently cited as major reasons for the,complexity which
involve multiple taxes, frequently levied by different taxing authorities. Rapid,changes and new
legislation also contribute to the uncertainty and increase the risk of errors. It,is often argued that
indirect tax costs, formal rules, restrictive regulations and bureaucracy can,be barriers to
international trade.

The need for effective management of indirect taxes in India, to avoid unnecessary costs and,risks
and maximise market opportunities is the primary concern for many multinational,companies.
Changes in the VAT/GST systems in countries that are undergoing tax reforms need,to be fully
integrated into companies pricing decisions and their invoicing and reporting,systems.

Former Chief Justice of India also has following to say with regard to Indian taxation system:,

Today the main problem is the interpretation. A tax officer can interpret a rule in a way that suits
him for meeting the revenue collection target. Unless the language is made very clear on various
provisions, it will be very difficult and everyone including lawyers, accountants and tax consultants
need to work on this. There is a need for effective controls, robust processes/documentation,
standardised procedures and the use of appropriate technology can help improve accuracy and reduce
risks.

In addition, collaborating across functions and geographies, and building relationships with trusted
third parties and tax administrations makes the most effective use of scarce resources and helps to
avoid costly and protracted disputes.

International Research Journal of Management Science & Technology

http://www.irjmst.com Page 17
IRJMST Vol 6 Issue 12 [Year 2015] ISSN 2250 1959 (0nline) 2348 9367 (Print)

PRIMARY ANALYSIS

RESPONDENT PROFILE
*Out of total 223 respondents ,there were 112 males and 111 females.
* Three-fourth respondents were students followed by 10% businessman.
*It was found that approximately 72% respondents are willing to update themselves about tax
laws however, 34% find them too complicated to understand. However, almost one third of
population is unwilling to learn about tax laws.
*Almost half (48%) respondents reported high rate of taxes as a reason for tax evasion. Almost
all reasons got consents from significant number of respondents which throws light on the large
number of issues faced by Indian taxation system ranging from poor enforcement of law to low
tax morality in general public. Additional reasons given by respondents were:
1. Gareebi(Poverty)
2. They feel their tax payment isnt fully utilised and is wasted.
*Almost three/fourth of respondents agreed that all indirect taxes should be replaced by a single

Goods and Services tax.

*Newspaper and magazines (50%) turned out to be the most common source of knowledge and
awareness regarding taxes followed byinternet (24%). Only 2% respondents reported Government
hoardings and advertisements assource of their tax awareness. Other sources (2%) reported were
family, via socialising,pursuing CA and emails.

*Income tax is paid by 44% of respondents and property tax by 33% whereas gift tax and inheritance
tax is paid by atmost 5% of people surveyed.

*TAX AWARENESS
Respondents were asked 5 questions related to taxes we encounter in everyday life to assess their tax
awareness. The 5 questions were:

S.No. Questions ANSWERS CORRECT INCORRECT

1. What type of tax structure is Progressive Tax 79% 21%

followed in India Structure

For Income Taxes?

2. Only air-conditioned restaurants True 39% 61%

can levy a service charge.

3. What percentage of your total 4.94% 48% 52%

restaurant bill can be charged as
service tax?

International Research Journal of Management Science & Technology

http://www.irjmst.com Page 18
IRJMST Vol 6 Issue 12 [Year 2015] ISSN 2250 1959 (0nline) 2348 9367 (Print)

4. What percentage of your movie 20% 26% 74%

ticket value can be charged as
entertainment tax in Delhi?

5. The Govt. exempts income tax Rs. 2,00,000 52% 48%

upto what income level?

*Group statistics show that average score obtained by males (2.53) was slightly higher than that
of females (2.37). Independent Samples T test was applied to find if the difference in means
was statistically significant. The results show that p-value>alpha value. Hence, our null
hypothesis cannot be rejected. Mean difference in tax awareness scores of males and females
is statistically insignificant at a 95% level of confidence.
*Mean awareness score of population is 2.5at a 95% level of confidence.
The p-value (sig) of Kolmogorov-Smirnov Test is .000 is less than Alpha-value of 0.05.
Hence, our null hypothesis is rejected and the awareness scores are not normally distributed.
*Overall, 71.7% respondents were found to be willing towards
tax awareness. Hence, the results give a positive indication that a significant percentage of
population is willing to update itself about tax laws.

CONCLUSIONS
The Indian Taxation structure has been reformed over the years in response to globalization,
fiscal adjustment strategies etc yet there is a room for further improvement in the taxation
structure in terms of awareness and perceptions of the masses, interpretation of tax laws and
the much-debated implementation of Goods and Services Tax(GST) and Direct Taxes
Code(DTC).Also, Tax Evasion and Avoidance have become issues of major concern for the
government as only 2-3 % of Indias population pays Income Tax and a revenue leakage of Rs
2158 crores have been reported by the Finance Ministry.
From our primary and secondary research, we could draw the following conclusions:
More than half of the respondents were not aware of the information related to taxes such as
Income Tax, Entertainment Tax that they pay in their daily life.Also,a major set of the
respondents wanted to update themselves regarding tax laws but find them too complicated to
understand. There is a weak correlation between willingness to update regarding tax laws and
tax awareness score and also awareness in males in slightly higher than that in females.
Newspapers and Magazines remain the primary source of information regarding taxes even
though use of Internet has increased drastically over the years.
More than half of the respondents were in favour of implementation of GST as it would not
only benefit the common man but also make tax laws easier to interpret and understand
High rates of taxes followed by Complex tax system are the primary reasons that lead to
Tax evasion and avoidance.
Tax evasion has become a major concern in developing countries like India and GST and
DTC might help to curb this problem to a large extent.

BIBLIOGRAPHY
WEBLINKS
1. Http://www.ey.com/Publication/vwluassets/Global_indirect_tax_developmentsthe_
shift_in_2013/$FILE/Indirect_tax_2013.pdf
2. Http://mospi.nic.in/Mospi_New/upload/statistical_year_book_2011/SECTOR-1-

International Research Journal of Management Science & Technology

http://www.irjmst.com Page 19
IRJMST Vol 6 Issue 12 [Year 2015] ISSN 2250 1959 (0nline) 2348 9367 (Print)

INDIA%20AN%20OVERVIEW/CH-06-
DIRECT%20&%20INDIRECT%20TAXES/DIRECTINDIRECT%
20TAX-WRITEUP.pdf
3. Http://www.ibtimes.com/how-many-people-india-pay-income-tax-hardly-anyone-
1294887
4. Http://blogs.economictimes.indiatimes.com/policypuzzles/entry/ax-rates-in-india-arehigh-
and-constitute-an-important-reason-for-tax-evasion
5. Http://finmin.nic.in/reports/ipfstat201213.pdf
6. Http://economictimes.indiatimes.com/personal-finance/tax-savers/tax-news/vote-onaccount-
2014-changes-that-defined-the-direct-tax-system-inindia/
articleshow/30465330.cms

APPENDIX
SAMPLE QUESTIONNAIRE
Taxation in India: Awareness and Perceptions
We are the students of ShaheedSukhdev College of Business Studies. We are doing a study on
perceptions and awareness of taxation in India. We ensure that the information provided by you shall
be kept confidential and used for academic purposes only.
Required
l
Name
Optional
Gender *
MaleFemale
Age *
Below 1818-3030-45Above 45
Occupation *
Student Business ServiceHousewife Self-employedProfessional
Do you update yourself on tax laws applicable to you and your family? *
YesNoI would like to but I find the laws too complicated to understand.
According to you, what are the reasons for tax evasion in India? *
You may choose more than one option
High rate of taxes
Unawareness about tax laws
Complex tax system
Inefficient tax authorities
Ineffective enforcement of law
Generation of black money in public sector
Low tax morality
Multiple taxes
People are aware but unwilling to pay taxes
Other:
Do you think that GST (Goods and services tax), a type of Value Added Tax (VAT) that will
replace alltypes of indirect taxes on goods and services should be implemented to make it easier
for the generalpublic to interpret tax laws? *
YesNoI don't care
What is the source of your knowledge and awareness regarding taxes? *
Newspapers and Magazines
Television and Radio
Internet

International Research Journal of Management Science & Technology

http://www.irjmst.com Page 20
IRJMST Vol 6 Issue 12 [Year 2015] ISSN 2250 1959 (0nline) 2348 9367 (Print)

Government hoardings and advertisements

Working Institutions
There is no source, I just pay the taxes I am asked to
Other:
Which of the following taxes are paid by you and your family whenever applicable? *
Income taxProperty taxWealth taxGift taxInheritance tax
The following questions are aimed at testing the taxawareness of the masses. You are requested
to answerthem honestly. Your responses shall be kept confidential.
What type of tax structure is followed in India for income taxes? *
Flat rate tax structureProgressive rate tax structureRegressive tax rate structure
Only air-conditioned restaurants can levy a service charge. *
TrueFalse
What percentage of your total restaurant bill can be charged as service tax? *
3.5%4.94%7.25%8.5%
What percentage of your movie ticket value can be charged as entertainment tax in Delhi? *
15%12.5%20%25%
The government exempts income tax on individuals with annual income up to *
1,25,000 2,00,000 2,50,000 5,00,000

International Research Journal of Management Science & Technology

http://www.irjmst.com Page 21