Page 14 - DCOM308_DCOM502_INDIRECT_TAX_LAWS

Unit 1: Introduction to Indirect Taxes

 One other difference is in the nature of direct taxes being progressive as they reduce Notes
inequalities whereas indirect taxes are regressive and lead to more inequalities.

 However, indirect taxes are easier to administer than direct taxes. Then there are no
exemptions in case of indirect taxes whereas there are many kinds of exemptions in direct
taxes.

 Indirect taxes, being wrapped up with retail prices are more efficient than direct taxes and
more difficult to evade.

 Cost of collection is also less in case of direct taxes which is pretty high in direct taxes.
 Indirect taxes are inflationary in nature. On the other hand, direct taxes bring stability and
reduce inflationary pressures as they take away excess purchasing power from the people.
 Direct taxes reduce savings and people are not able to make investments which affects
growth. On the other hand, indirect taxes are growth oriented. Indirect taxes discourage
people from spending too much and as such encourage savings.

Task Describe the difference between Direct and Indirect Tax.

1.7 Indian Taxation Structure

India has a well-developed tax structure with clearly demarcated authority between Central and
State Governments and local bodies. Central Government levies taxes on income (except tax on
agricultural income, which the State Governments can levy), customs duties, central excise and
service tax.

Value Added Tax (VAT), (Sales tax in States where VAT is not yet in force), stamp duty, State
Excise, land revenue and tax on professions are levied by the State Governments. Local bodies
are empowered to levy tax on properties, octroi and for utilities like water supply, drainage etc.
In last 10-15 years, Indian taxation system has undergone tremendous reforms. The tax rates
have been rationalized and tax laws have been simplified resulting in better compliance, ease of
tax payment and better enforcement. The process of rationalization of tax administration is
ongoing in India.
Since April 01, 2005, most of the State Governments in India have replaced sales tax with VAT.

 Taxes Levied by Central Government
 Direct Taxes
 Tax on Corporate Income

 Capital Gains Tax
 Personal Income Tax
 Tax Incentives

 Double Taxation Avoidance Treaty
 Indirect Taxes
 Excise Duty

 Customs Duty

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