Page 21 - DCOM308_DCOM502_INDIRECT_TAX_LAWS

Indirect Tax Laws

Notes
Approach
KPMG supported the client by analyzing all the operations performed and advising on
the fiscal implications of each operation. The main result of this phase of the project was
that KPMG issued a manual presenting the fiscal implications of all the operations
performed by the company. Then the IT system requirements had to be determined and
the necessary upgrades carried out. A team formed of Indirect Tax and IT Advisory
professionals worked together to design the IT systems’ rules and assisted the client in
introducing these rules into their management IT system. The final stage of the project
involved verifying whether the mechanisms to apply the new fiscal rules had been correctly
installed into the company’s IT systems and whether the upgraded IT system was working
properly.
We also conducted training for all the employees of the company who would work with
the new system, making sure that for each stage of data input there was a member of staff
who clearly understood the reasons behind his or her actions as well as the consequences
of an error.
Result
KPMG helped create an IT system suited to supporting the client’s staff in determining and
applying the correct fiscal treatment for the company’s operations. Our assistance helped
the client define clearly everyone’s roles and responsibilities in helping to ensure the
effective management of indirect tax. The client’s central tax team gained greater oversight
of compliance processes and greater confidence in the accuracy of their reporting. This has
added value to the business by improving the accuracy of returns and mitigating the risk
of unexpected tax demands from the authorities, as well as related penalty charges.

Source: http://www.kpmg.com/ro/en/whatwedo/tax/pages/indirect-tax-case-study.aspx

1.9 Summary

 The state governments charge tax on goods sold within the state.
 Service tax is levied on services provided by the businessman, professional or any other
service provider.
 An indirect tax is a tax collected by an intermediary from the person who bears the
ultimate economic burden of the tax.

 The Customs Act was formulated in 1962 to prevent illegal imports and exports of goods.
 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.
 The legal distinction between direct and indirect taxes was important enough to warrant
the passage of a Constitutional amendment.
 The 16th Amendment forever changed the tax code and paved the way for the passage of
a wide assortment of indirect taxes that affect virtually every aspect of modern life.

 The allocative effects of direct taxes are superior to those of indirect taxes.
 An indirect tax involves excessive burden as it distorts the consumer’s preference regarding
goods due to price changes
 Direct taxes are progressive and they help to reduce inequalities. But indirect taxes are
regressive and they widen the gap of inequalities.

16 LOVELY PROFESSIONAL UNIVERSITY