INTRODUCTION TO TAX SYSTEM
MEANING AND DEFINITION OF TAX
Taxation is one of the ways and means through which governments raise revenues for financing their expenditure. Taxes are imposed
on individuals as well as business entities (firms,small companies, big corporates, etc.).
Tax may also defined as a financial levy imposed by a state on ordinary [Link] may also be levied by certain sub-national
[Link] are basically two types of taxes, viz. direct taxes and indirect taxes. DIRECT TAXES & INDIRECT TAXES.
Direct taxes are paid directly(e.g. income tax, corporate tax, wealth tax,etc.),whereas the INDIRECT TAXES are paid indirectly (e.g. sales
tax, service tax, goods&service tax-GST,etc.)
According to prof. Seligman, " tax is a compulsory contribution from a person to the government to defray the
expenses incurred in the common interest of all, without reference to special benefits conferred".
According to Taylor,"taxes are compulsory payments to the government without expectation of the direct return
to the tax-payer ".
FEATURES OF TAX
[Link] IS A LEGAL COLLECTION
[Link] IS A PERSONAL OBLIGATION
[Link] IS A COMPULSORY CONTRIBUTION
[Link] IS IMPOSED BY GOVERNMENT ALONE
[Link] COLLECTION
[Link]-ECONOMIC OBJECTIVES
[Link] IS A CONTRIBUTION FOR THE COMMON BENEFIT OF THE SOCIETY
[Link] IS NOT A CONDITION FOR TAX PAYMENTS
OBJECTIVES OF TAX
[Link] PUBLIC REVENUE
[Link] AND CONTROL
[Link] OF INEQUALITIES IN INCOME AND WEALTH
[Link] BUSINESS STABILITY AND MAINTAINING FULL EMPLOYMENT CONDITIONS
[Link] CAPITAL FORMATION
[Link] OBJECTIVES
[Link] IN NATIONAL INCOME
[Link] UNNECESSARY CONSUMPTION
TYPES OF TAXES
[Link] THE BASIS OF FORM
a) on the basis of form
Direct tax: direct tax is a tax paid directly to the government by a person or [Link] responsibility of
paying such taxes lies with those individuals on whom they are [Link] EXAMPLES of direct taxes are
income tax, wealth tax, consumption tax, inheritance tax, gift tax,expenditures tax, etc.
Indirect tax: indirect tax is a type of tax, which is imposed on goods and services. Although, it is levied on one
person, but is paid by others, mainly due to significant changes having taken place in the terms of contract
entered between them. Some examples of indirect taxes are:
a) value added tax: as the name clearly signifies, the value added tax or VAT USA tax which is levied on the value
added to goods in the production and distribution process.
b) Goods and services tax: the goods and service tax or GST is levied both on goods and services. It is levied on
the goods and services consumed in an economy, therefore is regarded as a tax on final consumption.
C)Excise duty: it is a type of duty which is imposed on the production or manufacturing of [Link] liability to
pay excise duty arises as soon as the goods are manufactured or produced.
d)Custom duty: it is type of duty or tax that is imposed by the central government on imports to or exports from
India. The collection of tax is initially from the importer or exporter of goods.
e)Sales tax: it is a type of indirect tax which is levied at the point of purchase for specific goods and services. The
calculation of amount of tax to be paid in the form of sales tax is done by using a percentage rate to the taxable
price of a sale.
[Link] THE BASIS OF INCOME OR CONSUMPTION METHOD
a) progressive tax: under the progressive tax system, the tax rate is not uniform; it increases with increasing level
of income, i.e. lower the income, lower is the tax rate, and higher the income,higher is the tax rate.
b) Regressive tax: under the regressive tax system also, the tax rate is not uniform, but as against the
progressive tax system, wherein the tax rates increase with increasing levels of income,the regressive tax system
has decreasing tax rates with increasing income levels.
c) proportional tax: a proportional tax, sometimes also referred to as the ‘flat tax’, is a kind of income tax system,
which provides imposition of the same tax rates for all the tax-payers, irrespective of the income level. It is the
same for low-income, middle-income, or higher-income tax-payers.
d)degressive tax: the degressive tax system is a combination of progressive tax system and proportional tax
[Link] this system, the regime of the progressive tax rates is followed up to a specified limit, after which
the regime of proportional tax rates is followed.
[Link] THE BASIS OF ESSENCE
a) Ad valorem tax: tax imposed as a fixed percentage on the value of a commodity is termed as AD VALOREM
(Latin word meaning ‘on value’) tax.
b)specific tax: tax imposed on a commodity on the basis of its weight , size, or measurement. It is termed as
specific tax . It is stated in terms of definite sum.
4. On the basis of volume
a) single tax system: under the single tax system, only one kind of tax is levied on tax-payers.
b) multiple tax system: under multiple tax system. Taxes are levied on various kinds of items and bases.
DIFFERENCE BETWEEN DIRECT AND INDIRECT TAX
MEANING AND DEFINITION OF DIRECT TAX
DIRECT TAXES BELONG TO A CATEGORY OF TAXES, WHICH ARE PAID BY THE ASSESSEE/TAX PAYERS THEMSELVES DIRECTLY,
AND THEY ARE THE ONES WHO ARE RESPONSIBLE FOR THE SAME. SOME EXAMPLES OF DIRECT TAXES ARE INCOME TAX,
WEALTH TAX, CONSUMPTION TAX, EXPENDITURE TAX, INHERITANCE TAX, ETC.
ACCORDING TO J.S. MILL : "A DIRECT TAX IS ONE WHICH IS DEMANDED FROM THE VERY PERSONS WHO IT IS
INTENDED OR DESIRED SHOULD PAY IT".
ACCORDING TO BASTABLE ; "TAXES WHICH ARE LEVIED ON PERMANENT OF RECURRING OCASSIONS ARE
DIRECT TAXES".
Features of direct taxes
[Link] direct taxes are confirmed liabilities for the tax payers, and for the governments also they are the assured sources of revenues,
[Link] is a good measure for bringing down the prevailing disparities in income levels of different strata of society, and also ensuring
wealth distribution amongst masses,
[Link] is one of the important features of direct taxes,
[Link] taxes may be used by the government as an instrument for enhancing its revenue by increasing the rates of direct taxes,
[Link] taxes are simple to calculate and comprehensive without any complications,
[Link] is enough scope for evading direct taxes, for the tax payer, and
[Link] of direct taxes is restricted to specified groups of individuals/entities.
Advantages of direct taxes