Taxation in India: Systems, Evolution and Impact

Taxation in India: Systems, Evolution and Impact

• Financial position of the country is good.
• It reduces a government’s dependence on borrowings
• Tax buoyancy is strong

• Constrains the government to spend and puts pressure on the government to meet its fiscal deficit targets.

• It is the one who actually pays tax. True burden of a tax is given by incidence and not impact.

• It is the entity on whom tax is imposed. The entity has the legal responsibility to pay taxes.

• When incidence of a tax differs from the impact of the tax, it is tax shifting.

• Volume of goods and services on which tax is imposed

(FRBM) recommends GST

16th Lok Sabha. Ultimately, it was passed became 101st

Constitutional Amendment Act, 2016

• Central Excise duty
• Additional duties of excise
• Excise duty levied under Medicinal & Toilet Preparation Act
• Additional duties of customs (CVD & SAD)
• Service Tax
• Surcharges & Cesses

• State VAT / Sales Tax
• Central Sales Tax
• Purchase Tax
• Entertainment Tax (other than those levied by local bodies)
• Luxury Tax
• Entry Tax (A11 forms)
• Taxes on lottery, betting & gambling
• Surcharges Access

• Corporation Tax (6.81 in RS lakh crores)
• Minimum Alternative Tax (MAT)
• Dividend Distribution tax, Capital Gains tax.

• Agriculture tax,
• Professional tax

• Securities Transaction Tax,
• Commodities Transaction Tax

• Land Revenue,
• Stamp/Registration duty.
• Property tax in urban areas.

• Fringe Benefit Tax,
• Gift Tax

• To tax India revenue of foreign firms with no permanent establishments in India.
• With the intention of taxing the digital transactions -the income accruing to foreign e-commerce companies from India.
• GAFA TAX – France has taxed major companies – Google, Amazon, Facebook, Apple.

• To facilitate the taxation of ‘zero tax companies’-the companies which show zero or negligible income to avoid tax, despite showing hefty book profits.
• They are liable to pay a certain % of their book profit.
• All companies in India, whether domestic or foreign, fall under this.

• It is the income tax payable by start-ups on capital raised via the issue of shares.
• To make sure that the money coming in was genuine and to minimise fraud.

• It is a tax levied on dividends that a company pays to its shareholders out of its profits.

• Central GST Act, 2017
• Integrated GST Act,2017
• GST (Compensation to States) Act, 2017
• Union Territory GST Act, 2017
• GST Constitutional 101 Amendment Act, 2016

• Alcohol for human consumption,
• Petroleum products,
• Electricity, The supply of goods to the SEZ,
• Supply of goods that come under zero rate
• Fresh vegetables, fresh milk, cereal, meat etc.
• Raw materials.

• Increase tax Compliance
• Create a unified common market
• Discourage Tax evasion
• Taxation Streamlining

• Reduce corruption
• Bring about certainty
• Poverty Reduction
• Boost secondary sector

• Expansion of the tax base.
• Increase Compliance.
• Enhance Investment
• Improve the Investment Scenario.

• Chairperson- Union Finance Minister.
• Minister of State for Revenue (Central Government) will be a member
• 1/3rd voting share

• The Minister of Finance from each State or Minister nominated by the States will be its member including Delhi and Puducherry.
• 2/3rd voting share
• Members of the Council from the states have to choose 1 amongst themselves to be the Vice chairperson of the council. They can also decide his term

• Under Central Goods and Services Tax Act, 2017.
• It is the institutional mechanism to check the unfair profit-making activities by the trading community and to ensure that the benefits of the GST are passed on to the consumers.
• NAPA is headed by a senior officer of the level of a Secretary to the Government of India and shall have four technical members from the Centre and/or the States.

• It is a non-profit, government organization.
• It will manage the entire IT system of the GST portal
• 100% shares are owned by the Centre and State government.
• It will establish a uniform interface for the taxpayer and also create a common and shared IT infrastructure between the Centre and States.
• The GSTN will handle: Invoices + Various returns + Registrations + Payments & Refunds.

• It is a tax on tax. It makes the tax rate much higher than the original rate.

• It measures the responsiveness of tax mobilisation to economic growth/GDP.

• % change in adjusted tax revenue ÷ % change in income.

• It is the opportunity cost of taxing at concessional rates like giving exemptions, deductions, rebates, etc. to the taxpayers.

• Relationship between Government tax revenue and tax rates.

• It is the tax on companies that create negative externalities and adverse effects on the society. e.g.- carbon emissions tax or a tax on plastic bags.

• It refers to financial planning for tax efficiency. It is not illegal or unethical. It is Financial Prudence.

• It is the use of legal methods to minimize the amount of income tax owed by an individual or a business by claiming as many deductions and credits as are allowable.

• It is an illegal activity in which a person/entity deliberately avoids paying a true tax liability.

• Form of tax avoidance where a firm bases its headquarters in a low tax country while keeping its material operations in the high tax countries.

• Funds earned through illegal activity or the income concealed from the tax authorities.

• It is an illegal process of making large amounts of money generated by a criminal activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source.

• It is an offshore country that offers little or no tax liability. Eg- Cayman-islands, Singapore etc.

• It is an informal way of money transfer. “money transfer without money movement.

• Undue exercise of power by tax authorities to levy taxes using legal or extra-legal means.

• It is an agreement between a taxpayer and the tax authority determining the Transfer Pricing methodology for future years.

• Is the setting of the price for goods and services sold between controlled/ related legal entities to be situated in different countries within an enterprise.

• It is imposed over and above the tax for a specific predetermined purpose like Swachh Bharat Cess.
• The revenue from cess is not kept under the Consolidated Fund of India.
• Cess is not to be shared with States
• Cess is resorted to only when there is a need to meet the particular expenditure for public welfare.
• Cess is not a permanent source of revenue for the government, and it is discontinued when the purpose of levying it is fulfilled.
• It can be levied on both indirect and direct taxes.

• It is an additional charge on tax.
• The revenue from the surcharge is kept under the Consolidated Fund of India.
• Surcharge is not to be shared with states
• It is added to an existing tax and is not included in the stated price of the good or service.
• It is levied for extra services or to defray the cost of increased commodity pricing.

• It is a New Indirect Tax Network of the Central Board of Excise and Customs (CBEC).
• Helps in:
• Implementation of Goods and Services Tax.
• Extension of the Indian Customs Single Window Interface for Facilitating Trade (SWIFT).

• DTAA is a tax treaty between any two/multiple countries.
• So that taxpayers can avoid paying double taxes in the source and resident country.
• India has DTAA with countries like Australia, Canada, Germany, Mauritius, Singapore, UAE, the UK and US.

• Companies shift their profits to other tax jurisdictions having lower tax rates, thereby eroding the tax base in India.

• It is an outcome of the OECD / G20 BEPS Project.
• INDIA has ratified BEPS- MULTILATERAL CONVENTION.

• To combat money laundering in India.
• Under this, the Enforcement Directorate is empowered to conduct a Money Laundering investigation.

• It is an amnesty scheme that offers a complete waiver on interest and penalty to the taxpayers who pay their pending taxes by March 31.

• Sabka Vishwas is a legacy dispute resolution scheme to free the large number of small taxpayers of their pending disputes with the tax administration.

• Money that leaves the country through various channels and makes its way
• back into the country often as foreign investment. This mostly involves black money and is allegedly often used for stock price manipulation.

• These are typically corporate entities which do not have any active business operations or significant assets in their possession. The government views them with suspicion as some of them could be used for money laundering, tax evasion and other illegal activities.

• It is an agreement between the tax authority and MNC on the appropriate transfer pricing methodology for a certain period of time. Under this, the transfer price is fixed based on the “Arm’s length principle”.
• This principle states that the transfer price must be closer to the price at which goods and services are transacted between two unrelated entities.

• Tax Compliance is the degree to which a taxpayer complies (or fails to comply) with the tax rules of his or her country, for example by declaring income, filing a return, and paying the tax due in a timely manner.

• A grandfather clause (or grandfather policy or grandfathering) is a provision in which an old rule continues to apply to some existing situations while a new rule will apply to all future cases. Those exempt from the new rule are said to have grandfather rights or acquired rights, or to have been grandfathered in.

• Fiscal drag is a concept where inflation and earnings growth may push more taxpayers into higher tax brackets. Therefore, fiscal drag has the effect of raising government tax revenue without explicitly raising tax rates.

• The point at which tax cuts would expire, and spending cuts would be triggered.

• Established-1961.
• Aim- to stimulate economic progress and world trade.
• Most OECD members are high-income economies with a very high Human Development Index
• Headquarters: Paris, France; Total Members: 36.
• India is not a member, but a key economic partner.
• Reports and Indices by OECD-
• Government at a Glance 2017 report
• International Migration Outlook
• OECD Better Life Index

• Has the task of enforcing– Foreign Exchange Management Act, 1999 (FEMA) and Prevention of Money Laundering Act, 2002 (PMLA).
• It also processes cases of fugitive/ fugitives from India under Fugitive Economic Offenders Act, 2018.

• The central national agency responsible for receiving, processing, analysing and disseminating information relating to suspect financial transactions, money laundering and related crimes
• FIU-IND is an independent body reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.

• Both are a part of the Department of Revenue under the Ministry of Finance created under the Central Boards of Revenue Act, 1963.
• The Central Board of Excise and Customs (CBEC) was renamed as the Central Board of Indirect Taxes and Customs (CBIC) in 2018 after the roll out of the Goods and Services Tax (GST).
• CBIC deals with the tasks of formulation of policy concerning levy and collection of Customs, Central Excise duties, Central Goods & Services Tax and Integrated GST, prevention of smuggling.
• CBDT provides inputs for policy and planning of direct taxes in India and is also responsible for the administration of direct tax laws through the Income Tax Department.
• Tax Administrative Reforms Commission (TARC)- Parthasarathi Shome- proposal to merge the Central Board of Direct Taxes (CBDT) and Central Board of Indirect Taxes and Customs (CBIC).