INTRODUCTION
Taxes are an important source of income for the government. The government collects taxes in the form of money from people for various projects and development of the nation. The Indian taxation system is very well structured and has a three-tier structure consisting of central government, state government, and local municipal authority.
There are two types of taxes in India that are majorly divided Into direct tax and indirect tax. Direct tax is imposed on individuals and business entities as well as corporations. Direct tax cannot be transferred to another. Indirect tax can be shifted from one person to another like sales tax, entertainment tax, and excise duty. By working together, we can make sure that the government has the resources it needs to run the state and all of its concerns. To do this, a variety of taxes are levied on the earnings of citizens and businesses that conduct business in the nation
CHARACTERISTICS OF TAXATION
1. Taxes are compulsory – Taxes are imposed by law and are therefore mandatory. Therefore, taxes are obligatory payments made by citizens to their governments. Every citizen must pay taxes to support the government.
2. Taxation is contribution – Contribution is the act of lending assistance or providing something. Taxes are a community’s contribution to the government. Every individual must pay their fair share of taxes to support the government and assist it meet its expenses.
3. Taxation is for the benefit of the public – Taxation is imposed for the general welfare of society, regardless of the advantages to specific individuals.
4 No direct benefit – The government does not provide the taxpayer with any direct benefits for paying taxes; instead, it collects all forms of taxes compulsorily. The absence of a direct quid pro quo between the taxpayer and the public authority is what distinguishes taxes from other levies made by governments. Taxes are distinct from other government levies, such as pricing, fees, fines, etc., where the payers may receive direct advantages. All members of society profit from taxes in common.
5 The taxpayer’s income is used to pay taxes- Income is defined as money obtained, particularly regularly, from investments or work. As long as the income is realized, tax is paid from it.
6. The government has the jurisdiction to impose taxes – By imposing taxes on its inhabitants, governments exercise their sovereign power. The government alone can levy taxes on citizens.
7. Taxes are not the cost of the benefit – Taxes are not the cost of the benefit that the people receive from the government. Benefits and taxpayers are unrelated to one another, although paying taxes is intended to provide benefits to the broader public.
8. Taxation supports public welfare and economic growth – The government’s main goals are to maximize social welfare and economic progress.
INDIAN TAX SYSTEM ADVANTAGES
To run a state’s government and conduct its operations, money is required. Thus, the The government collects taxes from individuals and companies in a variety of methods.
In India, there are the following advantages to taxes.
1. Public sector financing for infrastructure initiatives aimed at improving welfare and development
2. Defense budget
3. Public insurance founded on empirical studies
4. Different salaries are paid to state and government employees.
INDIAN TAXATION SYSTEM
Economists and other financial experts have long examined, debated, and analyzed India’s tax system. This is a result of the complexity of a sizable population as well as the kind and scale of the companies selected to be included in the tax purview. Since successive administrations have been creating and enforcing increasingly varied tax rules, the tax-paying public has also had to cope with and adapt to the evolving Indian tax framework.
Article 246 of the Indian Constitution outlines the division of legislative authority between the State legislatures and the Indian Parliament. The Indian Tax system’s areas of responsibility under the various heads of government are mentioned in three lists found in the Constitution.
List 1: includes the area where the Parliament of India makes law.
List 2: includes the area where the state legislature enacts law.
List 3: includes the area wherein the Parliament Of India and state legislature together enact laws.
Taxes collected by governments are used to carry out the following
1. Public projects
2. Carry out government operations
3. Protection of Property
4. Expenditure on defence
5. Infrastructure
6. Government use such taxes for welfare of the people and service
7. Health care and sanitation
8. Education
9. Pension for elderly
10. Unemployment benefits
11. Public transportation
12. Indian Tax System
DIRECT TAX
In direct tax, the impact and burden are on the same person. As it is imposed on the individual organization, the burden of tax cannot be shifted to others. Direct taxes are less burdensome and based on income-earning ability. The government gets its income from taxes, and when taxes change, so do the government’s earnings. They can move in either direction. Direct taxes follow progressive principles which are followed by everyone by making rich people with higher taxation and poor people with a lower level of taxation. Direct tax is paid In lump sum so it becomes difficult for a person to pay in full. It is arbitrary in nature due to a lack of logical and scientific principles.
Types of Direct tax is
1. Income Tax
2. Transfer Tax
3. Entitlement Tax
4. Property Tax
5. Capital Gain Tax
ADVANTAGES OF DIRECT TAX
1.Equity: The equity of sacrifice associated with direct taxes is contingent on the amount of income. Because they are based on the progressive theory, tax rates rise in proportion to an individual’s income.
2. Elasticity and Productivity: Direct taxes are elastic because they allow the government to raise funds through them in the event of an emergency, such as a famine, earthquake, or flood.
3. Certainty: Direct taxes are certain for the government as well as the taxpayer. The amount of tax is known to the taxpayers. They must pay, and the amount they will receive overall is guaranteed by the government, as is the rate, mode, and timing of payment.
4. Reduce inequality: Because direct taxes are based on progressive principles, they tax the rich at a higher rate and the poor at a lower rate.
5. A useful tool in the event of inflation: The government can absorb excess funds by raising the rate of current taxes or enacting new taxes, as tax policy serves as a crucial fiscal tool in the event of inflation.
6. Simplicity: Direct taxes are straightforward, and income tax laws, processes, and regulations are extremely straightforward.
DISADVANTAGES OF DIRECT TAX
1. Evasion: Since direct tax is paid in one lump amount, taxpayers attempt to avoid it.
2 Uneconomical: Direct taxes require a high number of employees to collect, which drives up collection costs.
3. Unpopular: Because direct taxes must be paid in one big payment each year, taxpayers find the payment to be painful; as a result, these taxes are unpopular.
4. Limited motivation to work and save: The rates on direct taxes are progressive. Higher earners pay more in taxes, which leaves them with less money. Once the taxpayer reaches a specific salary level, they are thereby discouraged from working hard and saving money.
5. Unfit for a developing nation: The amount of direct taxes collected does not cover all of its expenses.
6. Arbitrary: Direct taxes are arbitrary because there is no logical or scientific basis that can be used to establish how much taxation should progress.
INDIRECT TAX
Indirect taxes are Imposed on one person and burden is on another to pay tax. Indirect tax is imposed on commodities and burden can be shifted. The person who pays the tax and the person who bears the burden are distinct in indirect taxation. The equity of indirect taxes is very high. The cost of the goods determines the tax. The amount of indirect taxes that may be applied increases with the price of the items. Thus, the greater indirect tax is paid by those who can afford expensive goods.
The government (manufacturers, merchants, etc.) must receive these taxes from the sellers. However, since companies sell items to customers, they transfer the tax payment responsibility to you.
Therefore, sellers pay the whole amount, including tax, when you buy products. The tax is subsequently paid to the government by the vendor. Excise taxes, service taxes, custom duties, sales taxes, entertainment taxes, VAT (value added tax), and securities transaction taxes are a few types of indirect taxes.
Types of Indirect Taxes are
1. Service Tax
2. Value Added Tax
3. Excise Duty
4. Custom Duty
5. Entertainment Tax
6. Stamp Duty
7. Securities Transaction Tax
ADVANTAGES OF INDIRECT TAX
1. High revenue production: Since many luxuries and necessities are purchased by the general public, wealthy and impoverished alike, indirect taxes contribute significantly to revenue collection.
2. No trying to hide: Because indirect taxes are incorporated into the cost of goods, it is challenging to evade or avoid paying them.
3. Economy : The administration costs associated with collecting indirect taxes are quite low, and the process of collecting these taxes is highly simple.
DISADVANTAGE OF INDIRECT TAX
1. Increased inflation: It is caused by higher production costs, higher input and output costs, and higher product prices as a result of indirect taxation. These show that worker earnings have increased.
2. Regressive in nature: Every member of the community uses basic necessities. There is no separation of the rich from the impoverished.
CONCLUSION
Despite the tax department’s state-of-the-art equipment, some administrative and procedural changes may be necessary. The public has to have access to the data and information that the tax authorities have employed. The use of data from uncorroborated private sources in overseas tax transactions that departmental officials and assessing officers gather ought to be forbidden by statute. Given that India has a high tax rate, foreign corporations should proceed with prudence before establishing a presence there. Choosing distributors, determining the type of business and how it operates, and choosing an appropriate sales channel
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