Page 11 - DCOM308_DCOM502_INDIRECT_TAX_LAWS

Indirect Tax Laws

Notes Custom Tariff Act and is equal to excise duty levied on a like product manufactured or produced
in India. If a like product is not manufactured or produced in India, the excise duty that would be
leviable on that product had it been manufactured or produced in India is the duty payable. If the
product is leviable at different rates, the highest rate among those rates is the rate applicable.
Such duty is leviable on the value of goods plus basic custom duty payable. (3) Additional Duty
to compensate duty on inputs used by Indian manufacturers: This is levied under section 3(3) of
the Customs Act. (4) Anti-dumping Duty: Sometimes, foreign sellers abroad may export into
India goods at prices below the amounts charged by them in their domestic markets in order to
capture Indian markets to the detriment of Indian industry. This is known as dumping. In order
to prevent dumping, the Central Government may levy additional duty equal to the margin of
dumping on such articles. There are however certain restrictions on imposing dumping duties
in case of countries which are signatories to the GATT or on countries given “Most Favoured
Nation Status” under agreement. (5) Protective Duty: If the Tariff Commission set up by law
recommends that in order to protect the interests of Indian industry, the Central Government
may levy protective anti-dumping duties at the rate recommended on specified goods.
The difference between a direct and indirect tax is complicated because it truly depends on
whether you are asking from a “legal” or an “economic” perspective. In economics, a direct tax
will refer to any levy that is both imposed and collected on a specific group of people or
organizations. A sales tax, for instance, would not be considered a direct tax because the money
is collected from merchants, not from the people who actually pay the tax (the consumers). An
example of direct taxation would be income taxes that are collected from the people who actually
earn their income. Indirect taxes are collected from someone or some organization other than
the person or entity that would normally be responsible for the taxes.

In this economic context, the law may actually determine the person or entities from which the
tax will be collected, but has nothing to do with how that tax burden is distributed in the market.
Who bears the economic burden of the tax itself will be determined by market forces and can be
calculated by comparing the price of the goods after the tax has been imposed with the price of
the goods prior to the tax being in place. For example, if the price of a gallon of gasoline was
$2.50 without taxes and the government suddenly imposed a $0.40 tax, the economic forces of
supply and demand would ultimately decide how this new burden is distributed between
buyers and sellers. For instance, the price could increase to $2.75 per gallon after the tax, with
buyers absorbing $0.25 of the increase and sellers the remaining $0.15. The law may have
imposed the tax but the marketplace ultimately decided how it would be distributed.
In a legal sense, the meaning of direct and indirect taxes changes so that a direct tax, according to
the U.S. Constitution, applies only to property and poll taxes. These direct taxes are based on
simple ownership or existence. Indirect taxes are imposed upon a broad range of abstract ideas,
including rights, privileges, and activities. In this sense, a tax on the sale of property would be
considered an indirect tax while the tax actually owed on the property would be direct.

The legal distinction between direct and indirect taxes was important enough to warrant the
passage of a Constitutional amendment - 16th Amendment - in 1913. Prior to this amendment
the law was written in such a way that all direct taxes imposed by the government had to be
directly apportioned to the population. In other words, any state having half as many people as
another state would only have direct tax revenue that equaled half that of the larger state. The
direct tax legal definition prevented the government from imposing personal income taxes
prior to the passage of the 16th Amendment because of the apportionment requirement. The
16th Amendment ended the apportionment requirement and created personal income taxes.
However, the apportionment requirement does remain on the books pertaining to other direct
taxes, such as property taxes. Due to the fact that there is no federal property tax, this legal
restriction has no literal meaning or fiscal impact.

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