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Dr. Somnath, International Journal of Research In Dr. Somnath, International Journal of Research in Management, Economics and Commerce, ISSN 2250-057X, Impact Factor: 6.384, Volume 07 Issue 10, October 2017, Page 85-94 Developments in Indirect Taxation in India: Road Ahead Dr. Somnath (Assistant Professor of Economics, Mukand Lal National College, Yamunanagar, Haryana, India) Abstract: India is the largest Federal democracy in the world. The Constitution of India provides that no tax shall be levied or collected by anyone except by the authority of law. Under the constitution, only the Parliament and State legislative assemblies have exclusive powers to make laws for levy of taxes. Prior to July,2017 multiple indirect taxes were levied by centre as well as states, by multiple agencies, due to which, not only avoidable leakages in tax collection taken place but also free flow of goods and services was affected. Doing business in such an environment became difficult and cumbersome affecting the national growth of the country negatively. In such a scenario Indian parliament has shown extraordinary foresight in conceiving a single indirect tax applicable throughout the country, which will make doing business easy, will help in increase business volumes leading to increased national growth, and will also help the government increase its welfare budget with higher collection of taxes ultimately resulting in overall prosperity of its citizens. With this aforementioned importance, On July 1, 2017, India unleashed its most revolutionary taxation reform in form of goods and services tax (GST) that promise to infuse a fresh energy into the economy by unifying the entire country into one Single Market. More than, twenty six years after liberalizing its economy to the outside world, India has now rolled out another significant financial reform that aims to carry forward and cement on the growth benefits of liberalization. The new goods and services tax (GST) subsumes 17 central and state taxes and 22 types of cess into single tax, thereby eliminating the complexity of multiple taxes, cascading of taxes and thus achieving significant simplification in indirect taxation. This paper is an attempt to review developments in Indirect Taxation system with the special focus on GST in India and effects of these developments on Indian Economy. Keywords: Taxation, Tax Policy, Fiscal Policy, Tax Reforms, Tax Evasion and Avoidance, Tax Law. JEL Classification: H2, H20, H21, H26, K34 I. INTRODUCTION The word ‘tax’ first appeared in the English language only in the 14th century. It derives from the Latin ‘taxare’ which means ‘to asses’. A tax is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority and is any contribution imposed by government whether under the name of toll, tribute, import duty, custom, excise, subsidy, by any another name. The basic principles of taxation are nearly as old as human society itself-the history of taxes stretches thousands of years into the past. Several ancient civilizations, including the Greeks and Romans, levied taxes on their citizens in order to pay for military expenses and other public services. Taxation evolved significantly as empires expanded and civilizations become structured. In India, the tradition of taxation has been in force from ancient times. It finds its reference in many ancient books like ‘Manu Smriti’ and ‘Arthasastra’. The Islamic rulers in the Mugal period imposed the Jizya tax. It was later on abolished by Emperor Akbar. However, Aurangzeb, the last prominent Mugal Emperor, levied Jizya on his mostly Hindu subjects in 1679. Reasons for this are cited to be financial stringency and personal inclination on the part of emperor. The period of the British Rule in India witnessed some remarkable change in whole taxation system of India. Although, it was highly in favour of British government and its exchequer but it incorporated modern and scientific method of taxation tools and systems. In 1922, the country witnessed a paradigm shift in the overall Indian taxation system. Setting up of the administrative system and taxation system was first done by the British. Taxes in India today are decided on by the governments: Central, State and local bodies. The authority to levy tax is derived from the constitution of India which allocates the power to levy various taxes between Centre and State. This review paper is based on secondary data of articles, journals, newspapers and magazines. Considering the objective of paper (Review of developments in Indirect Taxation system) descriptive type research design is adopted to have more accuracy and rigorous analysis. Purpose of Taxation Taxes are mainly used to finance expenses incurred by the government to mana ge an economy. These expenses include: health care, education, garbage collection and operating government business entities. Taxation is also used by government for several other purposes such as: Financing Government spending Reducing gap between rich and poor (Robin Hood Effect) http://indusedu.org Page 85 This work is licensed under a Creative Commons Attribution 4.0 International License Dr. Somnath, International Journal of Research in Management, Economics and Commerce, ISSN 2250-057X, Impact Factor: 6.384, Volume 07 Issue 10, October 2017, Page 85-94 Reducing consumption of demerit Goods Controlling Inflation Equilibrium in Balance of Payments Protecting local industries Principles of Taxation In a context where many governments have to cope with less revenue, increasing expenditures and resulting fiscal constraints, raising revenue remains the most important function of taxes, which serve as the primary means for financing public goods such as maintenance of law and order and public infrastructure. Assuming a certain level o f revenue that needs to be raised, which depends on the broader economic and fiscal policies of the country concerned, there are a number of broad tax policy considerations that have traditionally guided the development of taxation systems. The Benefit Principle: This principle holds that the taxes levied on individuals should be in proportion to the benefits that they receive from the governments and that taxes should be paid by those people who receive the direct benefit of the government programs and projects out of the taxes paid. The Ability-to-Pay Principle: This principle holds that taxes should relate with the individual's income or the ability to pay i.e., people with greater income or wealth that can afford to pay more taxes should be taxed at a hi gher rate than people with less wealth. E.g. Individual income tax. The Equal-Distribution Principle: This principle holds that income, wealth, and transaction should be taxed at a fixed percentage; that is, people who earn more and buy more should pay mor e taxes, but will not pay a higher rate of taxes. Developments in Indian Indirect taxation System Any tax levied by the government which is not backed by law or is beyond the powers of the legislating authority may be struck down as unconstitutional. Taxe s in India are levied by the Central Government and the State Governments. Some minor taxes are also levied by local authorities such as Municipality. Central Government State Government Local Bodies Income Tax Sales Tax Properties Service Tax Stamp duty Octroi Customs duties State excise Tax on Markets Central excise Land revenue Charges on utilities Sales Tax Duty on entertainment and services like Tax on professions water supply, sewage and callings disposal. The Central Board of Revenue or Departm ent of Revenue is the apex body charged with the administration of taxes. It is a part of The Ministry of Finance which came into existence as a result of the Central board of Revenue Act, 1924. Initially the Board was in charge of both direct and indirect taxes. However, when the administration of taxes became too unwieldy for one Board to handle, the Board was split into two, namely the Central Board of Direct Taxes (CBDT) and Central board of Excise and Customs (CBEC) with effect from January 1, 1964. Taxes are basically of two distinct types: Direct and Indirect taxes. Direct Taxes, as the name suggests, are taxes that are directly paid to the government by the taxpayer. It is a tax applied to individuals and organizations directly by the government e.g. income tax, corporation tax, wealth tax etc. Indirect Taxes are applied on the manufacture or sale of goods and services. These are initially paid to the government by an intermediary, who then adds the amount of the tax paid to the value of the goods / s ervices and passes on the total amount to the end user e.g. sales tax, service tax, excise duty etc. DIRECT Taxes Income Tax Tax levied directly on an individual's income Corporate Tax Annual taxes payable on the income of a corporate (company) operating in India Securities Transaction Tax Tax applicable on every transaction done at the stock exchange Wealth Tax (abolished by Charge on the net wealth of the Assessee http://indusedu.org Page 86 This work is licensed under a Creative Commons Attribution 4.0 International License Dr. Somnath, International Journal of Research in Management, Economics and Commerce, ISSN 2250-057X, Impact Factor: 6.384, Volume 07 Issue 10, October 2017, Page 85-94 government in budget 2015) Capital Gains Tax Tax on gain in capital of a sale in proper ty, shares etc INDIRECT Taxes Excise Duty Tax charged on goods produced within the country Custom duty & Octroi (On Custom duty - Tax charged on goods imported into Goods) India Octroi - Tax applicable on goods entering in to municipality or any other jurisdiction for use, consumption or sale Service Tax Tax on service providers on certain service transactions, but borne by the customers Sales Tax Tax on the sale of goods and services. Sales can be broadly classified into three categories, (a) Inter -State Sales (b) Sales that come under import/ export (c) Intra - State (i.e.
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