Page 9 - DCOM308_DCOM502_INDIRECT_TAX_LAWS

Indirect Tax Laws

Notes 7. Possibility of Tax Evasion: There is a possibility of evasion of indirect taxes as some
customers may not pay indirect taxes with the support of sellers. For instance, individuals
may purchase items without a bill, and therefore, may not pay Sales tax or VAT (Value
Added Tax), or may obtain the services without a bill, and therefore, may evade the
service tax.

1.2 Indirect Tax System in India

In general, the Indirect Tax in India is a complex system of interconnecting laws and regulations,
which includes specific laws of different states. For this there are many reliable organizations in
India, which employs efficient Indirect Tax professionals to help their clients. These tax
professionals with their in-depth knowledge and wide-ranging experience offers effective
planning methods to their clients in order to help in their cost minimization. The Indirect
Taxation regime encompasses various types of taxes like Sales Tax, Service Tax, Custom and
Excise Duties, VAT and Anti-Dumping Duties, and the organizations provide services in all
these related fields.
In the recent year, the Indian government has undertaken significant reform of indirect taxation
system. This includes the initiation of a region-based and state-level VAT on goods. However,
it should be noted that as taxes still forms a barrier to inter-state trading in order to attain a
secured market for the activities related to services and goods more reform is needed. Some of
the reforms that can be introduced for a better indirect taxation system in India are –

 The serialized set of Indirect Taxes so far activated at the central and state levels should be
amalgamated and treated as a single tax.

 The integrated Indirect Tax should be neutral at all levels such that chances of fraudulence
would be minimized.
 The Central Sales Tax, which obstructs easy trading between different states, is being
under the process of termination that would help to abolish the control measures on the
inter-state trade.

Indirect Taxes during Pre-Reforms

The indirect tax structure was extremely irrational between the reforms. The Constitution gives
the permission to levy a multitude of indirect taxes. But the most important ones are customs
and excise duties charged by the Central government and sales tax excepting inter state sales tax
to be charged by the state government. The indirect taxes levied by the center like customs,
excise and central sales tax and the major indirect taxes levied by the states and civic bodies like
passenger and goods tax, electricity duty and octroi when taken together did not present a
rational system.

1.3 Indirect Taxes in Post Reforms

Even post reforms, the indirect tax regime in India is still in the early stages of growth. Both the
Central and State governments charge a multitude of indirect taxes. The Central Government
charges tax on goods at the point of import (Customs duty), manufacture (Excise duty), interstate
sales (Central sales tax or CST) and on provision of services (Service tax).
The State Governments charge tax on goods sold within the state (Sales tax/Value Added Tax or
VAT), and on the goods that enter the state (Entry tax). In the present scenario corporate would
have to analyze the tax cost involved in a transaction, have enough backup documentation to
support their tax positions and keep looking for ways for tax maximization.

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