Tax Reformation in India

Tax
• A fee charged ("levied") by a government on
a product, income, or activity.
• If tax is levied directly on personal or corporate income,
then it is a direct tax.
• If tax is levied on the price of a good or service, then it is
called an indirect tax.
• The purpose of taxation is to finance government
expenditure.
• One of the most important uses of taxes is to finance public
goods and services, such as street lighting and street
cleaning.
 Sales Tax
• Under sales tax, tax is levied on every sale made.
• For example if a dealer (say A) sold goods to another dealer
(say B) he collects local sales tax from such dealer which is
normally included in his sale price.If dealer B again sells
goods to another dealer (say C) he again collects tax on
sales made by him.The tax levied by dealer B shall be on his
sale price i.e (his purchase price + profit ). As his purchase
price already includes tax paid by him,sales tax includes tax
on tax already paid i.e it is repetetive in nature.
Under VAT (value added tax) the tax is on sales made by
any dealer levied only on value added at each selling
point.so it is not repetetive in nature.
 Value Added Tax(VAT)
• Sales tax is retail only.
• Value-Added tax is a tax at every step of the
inventory process
• Taxed at every step from manufacturer to
distributor to warehouser to retailer to
customer.
• VAT is uniform; whereas sales tax differs from
state to state.
 Goods and Service Tax (GST)
• The Goods and Service Tax (GST) is a Value Added
Tax (VAT) to be implemented in India, from April 2016.
• GST is comprehensive tax mechanism where in all
major indirect taxes are clubbed into one, whether
they are levied on services(service tax) or goods(excise
and vat).
• Government had promised that GST will reduce the
compliance burdens at present.
• One of the aims of introducing GST is to reduce the
cascading effects of taxes which is the primary focus of
VAT but vat system is not comprehensive enough to do
so.
 Dual GST
• CGST,SGST
 VAT Vs GST
• VAT is value added tax (on products). GST
(Goods and Services Tax) is like VAT but
applies to Services also (apart from products).
• In India, we have VAT and Service Tax.
Whereas in many countries you have only GST
that applies to both products and services.
 History
• In 2000, the Vajpayee Government started discussion on
GST by setting up an empowered committee.
• An announcement was made by Palaniappan
Chidambaram, the Union Finance Minister, during the
central budget of 2007–2008 that it would be introduced
from April 1, 2010.
• After this announcement, the Empowered Committee of
State Finance Ministers decided to set up a Joint Working
Group on May 10, 2007, with the Adviser to the Union
Finance Minister and the Member-Secretary of Empowered
Committee as co-convenors and the concerned Joint
Secretaries of the Department of Revenue of Union Finance
Ministry and all Finance Secretaries of the states as its
members.
• The Joint Working Group, after intensive internal discussions as well
as interaction with experts and representatives of Chambers of
Commerce and Industry, submitted its report to the Empowered
Committee on November 19, 2007.
• This report was then discussed in detail in the meeting of
Empowered Committee on November 28, 2007.
• On the basis of this discussion and the written observations of the
states, certain modifications were made, and a final version of the
views of Empowered Committee at that stage was prepared and
was sent to the Government of India (April 30, 2008).
• The comments of the Government of India were received on
December 12, 2008 and were duly considered by the Empowered
Committee (December 16, 2008).
 Centre Includes Compensation in GST
Amendment Bill
• The Centre has included in the Goods and Services Tax
(GST) Constitutional Amendment Bill the compensation
which will be paid to states for revenue loss on account
of rolling out the new indirect tax regime.
• The Bill was introduced in the Lok Sabha on December
19.
• While liquor has been completely kept out of the GST,
petroleum products like petrol and diesel will be part
of the new regime from a date to be decided at a
future date by the GST Council, which will have two-
third of its members from states.
 India's GST structure is complex, says IMF
• Report says the proposed GST structure will require the
Centre to coordinate with 30 states, which is an
administrative challenge.
• Even as the International Monetary Fund (IMF) says the
proposed goods and services tax (GST) will improve tax
compliance and enhance economic growth by 1-1.5 per
cent over time, it finds the structure of the indirect tax
regime in India complex.
• “The GST design being contemplated is... fairly complex,
with a dual administration arrangement that involves the
tax authorities of both the Centre and states separately
taxing a single transaction,” says the Fund in a report on
India.
 Analysis on Budget 2015 - 2016
• Excise Duty & Service Tax
1. Rise in Excise Duty & Service tax(ST
increased to 14% from 12.36%) was seen
making it getting sync with the GST rates of
27%.
2. This is because the GST rate would not be
felt as a burden when it is adopted
3. Also, this would fund the CG as it requires
compensation payment to the states
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