Indirect Tax | Value Added Tax | Dumping (Pricing Policy)

Indirect tax – Fiscal Policy and Corporate Tax Submitted to- Swanand Dhonse 10/28/2010

Indirect tax

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Indirect tax – Fiscal Policy and Corporate Tax

INTRODUCTION
Unlike Direct Taxes, Indirect Taxes are not levied on individuals, but on goods and services. Customers indirectly pay this tax in the form of higher prices. For example, it can be said that while purchasing goods from a retail shop, the retail sales tax is actually paid by the customers. The retailer eventually passes this tax to the respective authority. The indirect tax, actually raises the price of a good and the customers purchase by paying more for that product Indirect taxes are the charges that are levied on goods and services. Some of the significant indirect taxes include VAT (Value Added Tax), sales tax, excise tax, stamp duties and expenditure tax.

BASIC DIFFERENCE BETWEEN DIRECT AND INDIRECT TAXES
The primary difference between a direct and indirect tax is that direct tax is levied directly by the government from the taxpayer, but indirect taxes are collected by the intermediary. Some of the examples of indirect taxes are Customs duties levied on imports, excise duties on production, sales tax or value added tax (VAT) at some stage in production-distribution process, and they are called indirect taxes because they are not levied directly on the income of the consumer or earner.

MEANING OF INDIRECT TAXES
An indirect tax is the charge that is collected by intermediary (like retail store) from the individual who holds the actual economic burden of the tax (like customer). The intermediary files a tax return and eventually passes to the government. The indirect tax can be alternatively defined as the charge that is paid by one individual at the beginning, but

Krunal patel(43) Amit narkar(41) Paresh patil(44) Rupesh devaliya(14) Nishank gonsalves(16)
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Indirect tax – Fiscal Policy and Corporate Tax the burden of which will be passed over to some other individual, who eventually holds the burden.

INDIRECT TAX IN INDIA
The indirect taxes in India are enforced upon different activities including manufacturing, trading and imports. Indirect taxes influence all the business lines 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. 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. At present the Indirect Taxes in India are under a transformation due to the changing fiscal reforms of the Indian government. Many new acts and laws are being introduced replacing the old laws and all related issues, which have become redundant. The reforms includes the initiation of a region-based and state-level VAT on goods.

TYPES OF INDIRECT TAX
• • • • • • • • Sales tax Value added tax Customs duty Excise duty State Level Taxes like octroi, property tax, stamp duty etc. GST Securities transaction tax Service tax

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export from India. Page | 4 . imposed by each state TO WHOM IS THESE TAX PAYABLE PAYABLE • Central Sales tax is generally payable on the sale of all goods by a dealer in the course of inter-state Trade or commerce or. It is to be paid by every dealer on the sale of any goods affected by him in the course of inter-state trade or commerce. • Sales tax is payable to the sales tax authority in the state from which the movement of goods commences. but in some circumstances may fall on the seller. outside a State or. The economic burden of the tax usually falls on the purchaser. Sales Tax. who pays the tax over to the government which charges the tax. There are two kinds of Sales Tax i. Most sales taxes are collected by the seller. 1. The tax can be included in the price (tax-inclusive) or added at the point of sale (tax-exclusive). The tax is usually set as a percentage by the government charging the tax. levied on the sale or purchase of goods.e. Sales Tax is a tax. There is usually a list of exemptions.Indirect tax – Fiscal Policy and Corporate Tax Let us see each indirect tax in details SALES TAX A sales tax is a consumption tax charged at the point of purchase for certain goods and services. imposed by the Centre 2. Central Sales Tax. in the course of import into or.

CST rate reduced to 2%.e. the tax collected under the Act in each State is kept by that State only. Tax collected in the state where movement of goods commences: The scheme of cst act is that central sales tax is payable in the state from which movement of goods commences (i. BASIC SCHEME OF THE CST ACT The basic scheme of the CST Act is as follows. though it is called Central Sales Tax Act. CST in each State is administered by local sales tax authorities of each State. the concept that revenue from sales tax should be collected by States has been retained. 1-3-2006 – Appeal to CST Appellate Authority will lie only against highest Appellate Authority of the State 18-4-2006 – LPG (liquid petroleum gas) for domestic use is added to list of ‘declared goods’ u/s 14 of CST Act to maintain tax rates at reasonable level. 1.CST rate reduced to 3%. However. Sales tax revenue to states – The CST Act provides for levy on Inter-State sales and also defines what ‘Inter-State Sale’ is. 1-6-2008 . 1-4-2007 . Tobacco products removed from list of declared goods.Indirect tax – Fiscal Policy and Corporate Tax RECENT CHANGES The Following are recent change in CST Law. CST has been reduced to 3% (from 4%) with effect from 14-2007. The tax collected is retained by the state in which it is collected. 'D' form abolished. From which goods are sold). Thus. It is announced that it will be reduced by 1% every year and made Nil by 1-4-2010. CST act is administered by sales tax authorities of each state. Thus. Page | 5 . the state government sales tax officer who collects and assesses local (state) sales tax also collects and assesses central sales tax. 2.

A VAT is an indirect tax. In respect of provisions like return. in that the tax is collected from someone who does not bear the entire cost of the tax. It is also collected at each stage of production and distribution i.Indirect tax – Fiscal Policy and Corporate Tax 3.e. State sales tax law applicable in many aspects: CST act makes provisions for very few procedures and rules. In contrast to sales tax. VAT replaced sales tax on 1 April 2005.. This type of tax is known as value added tax. Page | 6 . these firms levy the tax indirectly on the goods/services they produce/render at a percentage rate so as to reduce the tax burden imposed on them by the government and this burden is borne by the final consumer that purchases these goods produced by these firms. provisions of general sales tax law of the state applies. 4. Value added tax (VAT) is a consumption tax (CT) levied on any value that is added to a product. The increase in tax rate is borne directly by these firms and institutions that operate within the country by reducing the profit of these organizations. Tax on inter-state sale of goods: CST is tax on interstate sale of goods. if a supplier sells goods to the manufacturer. Value Added Tax is also fiscal policy tool used by the government to control certain economic variables (problems) that persist or have effect on the activities in the economy. VALUE ADDED TAX A Value Added Tax is a type of indirect tax that is imposed on goods and services which is being produced or rendered to the consumer. assessment. In India. appeals etc. Therefore. where sales tax is levied on total value at each stage. the manufacturer pays VAT on the goods bought and sells to the wholesaler also with the same VAT rate. Sale is inter-state when (a) sale occasions movement of goods from one state to another or (b) is effected by transfer of documents during their movement from one state to another. VAT is neutral with respect to the number of passages that there are between the producer and the final consumer.

supported by Maharashtra Value Added Tax Rules (MVAT Rules). 3. The BST Act was repealed and Maharashtra Value Added Tax Act. 1. valid tax Page | 7 . In addition to offering the possibility of a set-off of tax paid on purchases. 5.e. VALUE ADDED TAX IN MAHARASHTRA The Bombay Sales Tax Act.Indirect tax – Fiscal Policy and Corporate Tax On 1st April 2005. 2005 to usher in the progressive value added tax system in place of the old sales tax system. self-assessment system with more trust put on dealers.f. It is primarily a self-policing. The design of Maharashtra State VAT is generally guided by the best international practices with regard to legal framework. 4. the selling price of the goods and the tax on the sale. It eliminates cascading impact of double taxation and promotes economic efficiency. VAT replaced the single point sales tax. 1st April. It is invoice based. The tax paid on purchases supported by a. first point tax was introduced wherein goods were classified into three main schedules. mechanism resulting in better compliance. tax base and promotes equity. and as a result it offers a better financial system with less scope for error. 1959 introduced in 1959 underwent many changes thereafter and in July 1981. intermediate products and finished goods. HOW VAT WORKS When a dealer sell goods. It has an improved control. 6. It widens the. VAT is levied on sale of goods including intangible goods. It provides the potential for a stronger manufacturing base and more competitive export pricing. primarily that of double taxation. VAT is a modern and progressive taxation system that avoids double taxation. VAT in Maharashtra is levied under a legislation known as the Maharashtra Value Added Tax Act (MVAT Act). broadly covering tax free goods. VAT has other advantages for both business and government. 2002 came into force w. as well as operating procedures. The tax payable on sales is to be calculated on the selling price. Single point sales tax had a number of disadvantages. The tax is payable to the State Government. the sale price is made up of two elements. 2.

tax losses due to undervaluation should be limited to the value added at the last stage. 2. Therefore.5%. under VAT it is only buyers at the final stage who have an interest in undervaluing their purchases. One particular advantage is that of the widening of the tax base by bringing all transactions into the tax net. Secondly. under VAT. RATES OF VALUE ADDED TAX There are two main rates of VAT 4% and 12. Revenue-security: VAT represents an important instrument against tax evasion and is superior to a business tax or a sales tax from the point of view of revenue security for three reasons. Specifically. Coverage: Under other forms of sales tax.Indirect tax – Fiscal Policy and Corporate Tax invoice is generally available as set-off (input. tax credit) while discharging the tax liability on sales. VAT gives the new government the opportunity to bring back into the tax system all those persons and entities who were given tax exemptions in one form or another by the previous regime. since the deduction system ensures that buyers at earlier stages will be refunded the taxes on their purchases. The goods are grouped into five schedules as under: ADVANTAGES OF VAT 1. if payment of tax is successfully avoided at one stage nothing will be lost if it is picked up at Page | 8 . both seller and customer gain by evading tax. In the first place.

The credit does not subsidize the purchase of capital goods. 3. we assume you understand the basics and concentrate on some of the more unexpected pitfalls. The operation of a VAT resembles that of the income tax more than that of other taxes. 2. Revenues will not be sacrificed but would in fact be enhanced as a consequence of the broadened tax base. In addition the VAT does not burden capital goods because the consumption-type VAT provides a full credit for the tax included in purchases of capital goods. and ignorance is no defense. But there are some areas where it is easy to make mistakes. Co-ordination of VAT with other direct taxes Most taxpayers cheat on their sales not to evade VAT but to evade personal and corporate income taxes. and an effective VAT greatly aids income tax administration and revenue collection. VAT is inflationary Page | 9 . it simply eliminates the tax that has been imposed on them. We have already addressed essential goods and small business. 4. This is a real problem for labour-intensive economies and industries. all the taxes due on the product are lost to the government. This does not seem to be a bad idea at all. In this briefing. It must be stressed once again that if properly implemented VAT can ultimately lead to a reduction in overall rates of tax. It covers: 1.Indirect tax – Fiscal Policy and Corporate Tax a later stage If evasion takes place under a sales tax. DISADVANTAGES OF VAT VAT is reasonably straightforward. on the other hand.intensive competitor. Selectivity VAT may be selectively applied to specific goods or business entities. since the ratio of value added to selling price is greater for the former. These can lead to stringent penalties. VAT favors the capital intensive firm It is also argued that VAT places a heavy direct impact of tax on the labour-intensive firm compared to the capital.

There is merit in this argument. particularly if it attempts to replace direct or indirect taxes with steep. there is now a tendency in most countries to reduce this progressivity of taxes as has been done where a flat rate of income tax has been introduced. CUSTOMS DUTY The Customs Act was formulated in 1962 to prevent illegal imports and exports of goods. In any case. the places for clearance of goods imported or Page | 10 . observation from around the world has shown that steep tax rates lead to evasion. To the extent that they lead to a reduction in income tax. VAT is regressive It is claimed that the tax is regressive.Indirect tax – Fiscal Policy and Corporate Tax Some businessmen seize almost any opportunity to raise prices. 3. the Central Government has the power to notify the ports and airports for the unloading of the imported goods and loading of the exported goods. and in the case of income tax act as a disincentive to effort. temporary price controls. a careful setting of the rate of VAT and the significance of the taxes they replace should generally ensure that there is no increase if any in the cost of living. any price increases may be offset by increases in take-home pay. and the introduction of VAT certainly offers such an opportunity. progressive rates. However. its burden falls disproportionately on the poor since the poor are likely to spend more of their income than the relatively rich person. However.e. Duties of customs are levied on goods imported or exported from India at the rate specified under the customs Tariff Act. 1975 as amended from time to time or any other law for the time being in force. Further. any price consequence is one time only and prices should stabilize thereafter. i. For the purpose of exercising proper surveillance over imports and exports.

The Act also contains detailed provisions for warehousing of the imported goods and manufacture of goods is also possible in the warehouses. In order to give a broad guide as to classification of goods for the purpose of duty liability. BIMSTEC. Customs duties in India are administrated by Central Board of Excise and Customs under Ministry of Finance. south Asian countries and MERCOSUR countries are provided on the website of CBEC. Additional Duty (Countervailing Duty) (CVD): Page | 11 . 1. Foreign Exchange Management Act. Rates of customs duty for goods imported from countries with whom India has entered into free trade agreements such as Thailand. TYPES OF DUTIES Under the custom laws. Sri Lanka. etc. the following are the various types of duties which are leviable. OBJECTIVES OF CUSTOM DUTIES: ➢ Restricting Imports for conserving foreign exchange ➢ Protecting Indian Industry from undue competition ➢ Prohibiting imports and exports of goods for achieving the policy objectives of the Government. Conservation of Foreign Exchange and Prevention of Smuggling Act. ➢ Regulating exports ➢ Coordinating legal provisions with other laws dealing with foreign exchange such as Foreign Trade Act. the routes by which above goods may pass by land or inland water into or out of Indian and the ports which alone shall be coastal ports. For a person who do not actually import or export goods customs has relevance in so far as they bring any baggage from abroad.Indirect tax – Fiscal Policy and Corporate Tax to be exported. the central Board of Excise & Customs (CBEC) brings out periodically a book called the "Indian Customs Tariff Guide" which contains various tariff rulings issued by the CBEC.

Dumping duty can be levied on imports on such countries only if the Central Government proves that import of such goods in India at such low prices causes material injury to Indian industry. the Central Government may levy additional duty equal to the margin of dumping on such articles. if the goods have been sold at less than normal value. Duty on Bounty Fed Articles: In case a foreign country subsidises its exporters for exporting goods to India. additional duty Page | 12 . If a like product is not manufactured or produced in India. Dumping duty can be imposed even when goods are imported indirectly or after changing the condition of goods. Such duty is leviable on the value of goods plus basic custom duty payable. This is known as dumping. the Central government may vary the provisional rate of dumping duty. 2. If the customs value of goods is Rs.1100/-. If the product is leviable at different rates.Indirect tax – Fiscal Policy and Corporate Tax This additional duty is levied under section 3 (1) of the Custom Tariff Act and is equal to excise duty levied on a like product manufactured or produced in India. such duty may be provisionally imposed. After the exact rate of dumping duty is finally determined. CVD will be Rs. 3. 5000 and rate of basic customs duty is 10% and excise duty on similar goods produced in India is 20%. the highest rate among those rates is the rate applicable. Pending determination of margin of dumping. eg. 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. the excise duty that would be leviable on that product had it been manufactured or produced in India is the duty payable. In order to prevent dumping. the Central Government may import additional import duty equal to the amount of such subsidy or bounty. If the amount of subsidy or bounty cannot be clearly determined immediately. There are however certain restrictions on imposing dumping duties in case of countries which are signatories to the WTO or on countries given "Most Favoured Nation Status" under agreement.

A 5% customs duty is imposed on Set Top Box for television broadcasting. 4. Such increase in duty must be by way of notification which is to be placed in the Parliament within the session and if it is not in session. The Central Government has been granted emergency powers to increase import or export duties if the need so arises. it should be placed within seven days when the next session starts. Export Duty: Such duty is levied on export of goods. If the bill is not passed within six months of introduction in Parliament. Notification should be approved within 15 days. The rate varies for different items from 5% to 40%. the Central Government may levy protective anti-dumping duties at the rate recommended on specified goods.Indirect tax – Fiscal Policy and Corporate Tax may be collected on a provisional basis and after final determination. Such notification must also be placed before Parliament for approval as above. Other duties are added on this duty to complete the customs duty liable on a particular commodity. Page | 13 . At present very few articles such as skins and leather are subject to export duty. Protective duty may be cancelled or varied by notification. 5. 6. Protective Duty: If the Tariff Commission set up by law recommends that in order to protect the interests of Indian industry. the notification ceases to have force but the action already undertaken under the notification remains valid. Basic Duty: This is the basic duty levied under the Customs Act on all the imported items. Such duty will be payable up to the date specified in the notification. difference may be collected or refunded. The notification for levy of such duties must be introduced in the Parliament in the next session by way of a bill or in the same session if Parliament is in session. The main purpose of this duty is to restrict exports of certain goods.

Indirect tax – Fiscal Policy and Corporate Tax SERVICE TAX Service tax is charged on the gross value of services and is generally payable on receipt basis. this burden is shifted to the recipient of service with effect from 16 August. etc.it is payable by the service provider but it is ordinarily recovered from the recipient of services. Service tax is levied at the rate of 10% (plus 2% education cess) on certain identified taxable services provided in India by specified service providers. every person liable to pay service tax is required to register it with service tax authorities and comply with procedural requirements like paying taxes. However. Service tax is a comparatively new levy in India and very few judicial precedents are available on the subject. filing returns. It is an indirect tax . TAXABLE SERVICES Advertis ing Agency Authori zed Service Station Busines s Auxiliar y Services Chartere d Account ant Air Travel Agent Banking and Other Financial Services Business Exhibition Cleaning Activity Services Airport Beauty Treatme nt Cable Operato r Clearing and Forward ing Architec t Broadca sting Cargo Handlin g Constru ction Sound Recordi ng Steamer Agent Stock Broker Storage and Wareho using Page | 14 . in case of non-residents. Ordinarily. 2002. who do not have any office in India and who are liable to pay service tax in India.

Indirect tax – Fiscal Policy and Corporate Tax Agent Constru ction of Comple x Services Courier Consultin g Engineer Credit Rating Agency Erection. Commissi oning and Installatio n Agency Forward Contract Convent ion Cost Account ant Dredgin g Services Survey and Explorat ion of Mineral Survey and Mapmaking Services Technic al Inspecti on and Certifica tion Technic al Testing or Analysis Telegrap h Telepho ne and Pager Telex Custom House Agent Dry Cleanin g Event Manage ment Facsimil e Fashion Designi ng Goods Transpo rt by Air Intellect ual Property Life Insuranc e Manage ment Consult ant Outdoor Franchis e Health Club and Fitness Centre Internet Café Mailing List Compila tion General Insuranc e Insuranc e Auxiliar y Services Leased Circuit Mainten ance or Repair Mailing Services Opinion Poll Access or Retrieva l Photogr Goods Transport by Road Interior Decorator Mailing List Mandap Keeper Packaging Databas e Pandal Tour Operator Transpo Page | 15 .

etc.Indirect tax – Fiscal Policy and Corporate Tax rt of goods other than water Travel Agents (other than air and rail) through pipeline or other conduit services Underwr iters Caterer Activity Services and Shamia na aphy Studio Port (major and others) Programm e Productio n Rail Travel Agent Real Estate Agent Rent-acab Video Producti on Scientific or Technical Consultan cy Security Agency Site Formati on and Clearan ce. Services Page | 16 ..

If the tax on services reduces the degree of intensity of taxation on manufacturing and trade without forcing the Government to compromise on the revenue needs. trade (domestic & international) and service without giving rise to cascading effect of taxation would be an ideal worth pursuing in the immediate future. Continued growth in GDP accompanied by higher rate of growth in service sector promises new & wider avenues of taxation to the Government. then one of the basic objectives of taxing the service sector would be achieved. This would bring in VAT in its truest sense.Indirect tax – Fiscal Policy and Corporate Tax FUTURE GROWTH PATH FOR SERVICE TAX IN INDIA Service tax is envisaged as the tax of the future. Page | 17 . Well synchronized taxation on manufacturing.

But in 1944. 1944". Special duty of excise specified in the Second Schedule to the Central Excise Tariff Act. 3. 19 paisa is contributed by Excise. Central Excise duties are the single largest source of Revenue for the Central Government of India. 1944". Page | 18 . 1944. 2. out of every one Rupee Government earns. 1944 and Central Excise Rules. On an average. To simply state Excise is a tax levied on goods manufactured or produced in India. It was then renamed as "The Central Excise Act. 11 different Acts were combined into one Act and this was then named as "The Central Excise and Salt Act. 1985 leviable under the Central Excise Act. COLLECTION OF CENTRAL EXCISE DUTY They are levied and collected by Central Excise Department under the authority of the Central Excise Act. 1978. 1957. In 1975 the Tariff Item 68 was introduced with the description "all other goods not elsewhere specified Excise is one of the important indirect taxes which is based on this principle. The Entry empowers the Central Government to levy Duty on all articles produced or manufactured in India (including tobacco) except Alcohol and Opium. Apart from the Basic Excise duty. 1944. Additional duty of excise under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act. The power to collect Excise duty on Alcohol and Opium has been assigned to States and it is known as State Excise duty.Indirect tax – Fiscal Policy and Corporate Tax EXCISE DUTY Central Excise levy was existing for years. which contains the Tariff Items 1 to 67. This Act is the original Act for excise. the following types of duties are also levied: 1. Additional duty of excise under the Additional Duties of Excise (Textiles & Textile Articles) Act.

The goods should be MENTIONED in the Central Excise Tariff Act. 1944. Ad valorem.. Duty on production capacity: On certain Notified Goods under section 3A. sufficient supply of essential commodities.e. i. The goods should arise out of MANUFACTURING process. Specific.. Rates of duty are of three kinds: 3. (If one of the criteria mentioned above is absent. The goods should be MARKETABLE (capable of being bought and sold). EXCISABLE GOODS ARE OF TWO KINDS: 1. (No duty on immovable goods). industrial growth. The goods should be MOVABLE. Goods as per this Act must possess the following characteristics called as the 4 Ms 1. even if there is entry in the tariff). Manufactured Goods.Indirect tax – Fiscal Policy and Corporate Tax EXCISABLE GOODS Excisable goods refer to those Goods which are mentioned in the Central Excise Tariff Act. Unmanufactured Goods (Coffee. The Union Government tries to achieve different socio-economic objectives by making suitable adjustments in the scope and quantum of levy of Central Excise duty.e. 3. IMPORTANCE OF CENTRAL EXCISE DUTY Central excise revenue is the biggest single source of revenue for the Government of India. the item cannot be described as goods to attract Excise levy. on the value of goods expressed in terms of % of the value. 4. i. 4. 5. Tobacco). Page | 19 . and promotion of small scale industries and like Authority for collecting the Central Excise duty. 2. per kg. The scheme of Central Excise levy is suitably adapted and modified to serve different purposes of price control. 2.

Assessment is done by Excise Officer and thereafter the goods are removed under his supervision. 3.Indirect tax – Fiscal Policy and Corporate Tax TYPES OF EXCISE CONTROL 1. Self Assessment Procedure: This self removal procedure requires the assessee to file a classification declaration for his goods in quadruplicate under rule 173B to inform the department of the claimed rate of duty applicable to his Goods. Page | 20 . marble slabs etc. 2. Collection of Central Excise Duty at the point of consumption: It is confined to Khandsari Molasses going for manufacture of alcohol. Levy of Excise Duty on the basis of capacity of production: This is a New Weapon in the Government's armoury. Physical Control: Applicable to manufactured tobacco and mainly to cigarettes. 5. 4. A new section 3A has been introduced to fight evasion. Compounded Levy Scheme: It is meant for small-scale decentralised sector like embroidery.

to justify the introduction of STT only in terms of smooth collection of taxes would be a serious mistake. The Securities Transaction Tax was introduced by Chapter VII of the Finance Act (No. debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate ➢ Derivatives Page | 21 . SECURITIES 'Securities' are defined under Section 2(h) of the Securities Contracts (Regulation) Act. as many market players falsify transactions to evade capital gains taxes but it would be erroneous to consider STT (indirect tax) as a substitute to capital gains tax (direct tax). bonds.Indirect tax – Fiscal Policy and Corporate Tax SECURITIES TRANSACTION TAX When the ministry of finance announced it’s Annual Budget for the year 2004-2005. There are several other benefits of STT in the Indian financial markets. Securities Transaction Tax is applicable on purchase or sale of equity shares. it also announced a new tax which would be levied on capital gains on financial securities -Securities Transaction Tax. It is a tax being levied on all transactions done on the stock exchanges. stocks. scrip’s. Further. 1956 (SCRA) to include: ➢ Shares. STT has been an efficient instrument to collect the taxes.2) Act. 2004. equity-oriented funds and equity-oriented mutual funds in a recognized stock exchange. debentures. derivatives. If there are problems in collecting capital gains taxes. these should be sorted out rather than reducing and abolishing it altogether.

Page | 22 . units of equity oriented mutual fund (delivery based). LONG-TERM CAPITAL GAINS: ➢ For sale of equity shares. the gains are exempt from tax under section 10(38) ➢ For sale of unit of an equity oriented fund to the mutual fund. 2002 ➢ Such other instruments as declared by the central government. the gains are taxable at the rate of 10% (+surchage +education cess) under section 111A ➢ Sales of equity shares. units of equity oriented mutual fund (delivery based). the gains are exempt from tax under section 10(38) 1. the gains are taxable at the rate of 10% (+surcharge +education cess) under section 111A ➢ For sale of unit of an equity oriented fund to the mutual fund. SHORT-TERM CAPITAL GAINS: ➢ For sale of equity shares.Indirect tax – Fiscal Policy and Corporate Tax ➢ Units or any other instrument issued by any collective investment scheme to the investors in such schemes ➢ Security receipt as defined in Section 2(zg) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act. bonds. debentures and units of mutual fund other than equity oriented mutual fund. 1. and ➢ Rights or interest in securities ➢ Equity-oriented mutual funds (not debt-oriented mutual funds) ➢ STT is not applicable in case of government securities. TAX EXEMPTIONS STT so paid is allowable as deduction in computation of taxable income under the head profits or gains from business or profession with effect from 1 April 2009. one can claim tax rebate under section 88E. If income is shown as business income. units of equity oriented mutual fund (non-delivery based) and sales of derivatives are both treated as business income.

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Octroi is levied at the time when the goods enter the municipal limits where the goods are to be ultimately sold. These taxes are as follows OCTROI DUTY Octroi is a tax levied on the entry of goods into a municipality or any other specified jurisdiction for use. 1.500-strong assessment and collection department The octroi department of Brihanmumbai Municipal Corporation (BMC) has registered a record tax collection to the tune of Rs 4252 crore.” Octroi has clearly contributed to the tune of 33 per cent of MCGM's annual budget and it has been enjoying a 4. Octroi rates differ for different local areas.23. out of which Rs.Indirect tax – Fiscal Policy and Corporate Tax STATE LEVEL TAXES Apart from various indirect taxes collected by center the state also imposes certain taxes. This is 10 per cent higher than the sales tax. OCTROI IN MAHARASTHRA Page | 24 . Generally.54 Crore only were from 'town duty'. For example. octroi is borne by the purchaser. thus indicating the sharp increase of business in Mumbai.in 2007-08 an increase of around 20 per cent as compared to previous year.61% of total municipal revenue while town duty accounted for only 6. Goods in transit are exempted from octroi. Goods are classified into groups for levying the octroi at different rates. 18. Property taxes accounted for 78. The dictionary definition of Octroi terms it to be “a local tax collected on various articles brought into a district for consumption. used or consumed. Octroi as a tax in the BMC was introduced in 1965. consumption or sale. octroi is being levied only in certain states. in 1964.64 Crore. At that time yield from property tax was the mainstay of municipal tax revenue for Mumbai. Currently. total revenue of BMC was Rs.59 Crore were from property tax while Rs.53%. Prior to that only 'town duty' was being levied on a very few items.

the municipalities seem to be opposing the abolition of their main source of income-Octroi. the MBMC has set up 20 centers across the area to enable traders to register themselves. The Industry seems to echo the idea that Octroi must be abolished due to its various ill effects including the final distribution price. Traders will pay cess depending on their business turnovers. Almost a decade has passed since the ongoing tussle between the industries and the municipal corporations of Maharashtra over the Octroi levy. The financial implications of abolishing octroi in the Municipal Corporations are however. and it will not be possible for them to discharge their responsibilities unless they are given an equally potent alternative revenue source or. to replace octroi. MIRA-BHAYANDAR CASE All goods can now flow in and out of Mira-Bhayandar freely with octroi being completely abolished by the Mira-Bhayandar Municipal Corporation (MBMC) from September 1.Indirect tax – Fiscal Policy and Corporate Tax Maharashtra has 21 municipal corporations spread across the State. Page | 25 . Such industries will return to the area with the abolition of the duty and number of industries in the Vasai-Virar belt may also shift to Bhayandar to take advantage of the octroi abolition and to escape the frequent power cuts. which had been collecting octroi on behalf of the MBMC for the past one year. much more substantial since municipal finances depend heavily on octroi income. With the abolition of octroi. From September 1. Traders in Mira-Bhayandar had gone on a week-long strike from August 1 demanding the abolition of octroi. On the other hand is the industry. Many Governments had abolished octroi in Municipal Councils in the year 1999. A number of small scale industries had shifted out of Bhayandar to escape octroi duty. given that it contributes nearly 60% to their revenue. It has been replaced by an account-based cess. The latter is not possible due to State’s own developmental commitments and the heavy debt burden. MBMC becomes the second civic body after Navi Mumbai Corporation. Account-based cess is currently levied in Navi Mumbai. are compensated in perpetuity from the State budget. On the one hand. They had alleged harassment at the hands of the private collection agency Konark Infrastructure.

Stamp papers are to be purchased in the name of one of the parties to the document. over a period of time. the purchaser/transferee has to pay or in case of property exchange. policy of insurance. extinguished or recorded but does not include a bill of exchange. conveyance deed. Indian Stamp Act) apply. transferred. Stamp paper is valid for six months from the date of purchase.Indirect tax – Fiscal Policy and Corporate Tax STAMP DUTY Stamp Duty is payable at the prescribed rates on instruments recording certain transactions. letter of credit. A delay attracts penalty at 2% per month. etc. extended. In the absence of such a state Act. bill of lading. stamp duty is levied by respective states as per the state Act. shares. the stamped document has obtained so much value that a ‘stamped document’ is considered much more authentic and reliable than an un-stamped document. However. including transfers of immovable property. Page | 26 . 1899 is to raise revenue to Government. cheque. gift deed.e. Generally. all transfer documents including agreements to sell. The basic purpose of Indian Stamp Act. INSTRUMENTS CHARGEABLE TO STAMP DUTY Instruments include every document by which any right or liability is or purports to be created. subject to maximum penalty of 200% of the deficit amount of stamp duty. transfer of shares. promissory note. WHO PAYS STAMP DUTY? In the absence of an agreement to the contrary. both parties have to bear it equally. limited. It is a tax and must be paid in full and on time. the provisions of the central Act (i.

0.000 Rs. deed of partition. lease deeds. power of attorneys. 50. leave and licence agreement. agreement of tenancy. 1. 00. 00.operative society or not is at a flat rate of 5% of the market value.000 Above Rs. exchange deed.5% of the value 50. 8.5. Rs.2. STAMP DUTY ON PROPERTIES Stamp duty on non-residential properties whether in a co. 1. 00. 00.Indirect tax – Fiscal Policy and Corporate Tax mortgage deed. Property tax can be defined as "generally. 1.750 + 5% of the value PROPERTY TAX A property tax is a tax imposed on property by reason of its ownership.000 nil Rs.5. Stamp duty on residential flats in a housing society and buildings Upton Rs.001 to Rs.000. 2. power of attorney to sell for consideration etc. tax imposed by municipalities upon owners of property within their Page | 27 .250 + 3% of the value Rs. have to be properly stamped.001 to Rs.

g. Land 2. landlords sometimes gain homestead tax credits by claiming multiple properties in different states. while only one property is truly their residence. LUXURY TAX Page | 28 . Homestead exemptions increase the complexity of property tax collection and sometimes provide an easy opportunity for people who own several properties to benefit from tax credits to which they are not entitled. and even their own state. where the tax base is the estimated value of the property. the property tax often rises sharply and the property's sale price may become the basis for new exemptions and limits available to the new owner-occupant. Improvements to Land (immovable man made things) 3. Generally. Personalty (movable man made things) HOMESTEAD EXEMPTIONS In some states.. When a homesteaded property changes ownership.Indirect tax – Fiscal Policy and Corporate Tax jurisdiction based on the value of such property. Property taxes are usually charged on a recurrent basis (e." Property tax is a tax that an owner of property (usually real estate) is liable to pay. Since there is no national database that links home ownership with Social Security numbers. Homestead exemptions generally cannot be claimed on investment properties and second homes. A common type of property tax is an annual charge on the ownership of real estate. these exemptions and ceilings are available only to property owners who use their property as their principal residence. laws provide for exemptions (typically called homestead exemptions) and/or limits on the percentage increase in tax. as their "principal residence". yearly). Property Tax India is levied on residents by local municipal authorities to upkeep the basic civic services in the city. which limit the yearly increase in property tax so that owner-occupants are not "taxed out of their homes". Property again consists of three entities: 1.

Over time. a lodging house. radio. a public house or a building or part of a building. IMPACT OF LUXURY TAX When a luxury tax is imposed. where a residential accommodation is provided by way of business The hotelier who is liable to pay the tax may collect it from the customers a rate admissible under the act of prevailing at that point of time. Therefore the effect of a luxury tax may be to increase demand for certain luxury goods. charged as a percentage on all items of particular classes. clubs etc. resulting in more and more people being affected by the tax. extra beds but does not include the supply of food. telephone. which is a type of good for which demand increases as price increases. except that it mainly affects the wealthy because the wealthy are the most likely to buy luxuries such as expensive cars. however.e the period ending 31st March. The Luxury Tax was introduced w. typically there is little to no outcry from the majority of the population as most people are not in a position to be affected by the tax. a farm house. The term "hotel" includes a residential accommodation. except in case of major hotels who are required to pay the tax on monthly basis (the return shall be filed before the 15th of the next month). a club.e. an inn. the rate or charges for which including the charges of air conditioning.Indirect tax – Fiscal Policy and Corporate Tax A luxury tax is a tax on luxury goods -. a resort. since a luxury good has a high income elasticity of demand by definition. music. A luxury good may be a Veblen good.11. etc. In order to Page | 29 . "Luxury Provided in hotel" means accommodation and other services provided in a hotel. The hotelier registered under the Act is required to pay tax on quarterly basis i. what is viewed as "luxury" might change. both the income effect and substitution effect will decrease demand sharply as the tax rises. 30th September & 31st December by the end of succeeding month respectively along with the returns. lodging houses.products not considered essential. 30th June. In general.1996 on various hotels. drinks or other services which is separately charged for.f from 1. jewelry. A luxury tax may be modeled after a sales tax or VAT.

assessment is carried out by the assessing authority.5 to 10 per cent.Indirect tax – Fiscal Policy and Corporate Tax quantify the tax due from the hotelier in respect of the year during which he is liable to pay tax. The minister has proposed an additional value added tax (VAT) of almost eight per cent on tobacco products to offset the loss in revenue due to reduction in luxury tax. a Goods and Services Tax (GST) on all commodities and services is most suitable taxation system for a growth oriented and developing economy of India. Page | 30 .5%. The luxury tax reduction was announced to provide stimulus to the travel trade industry. A uniform rate structure would basically get in a lot of administrative efficiency and if this can be capped somewhere at around between 8-10% that would be really great in boosting tourism within India because in certain states the luxury tax is as high as 15-17. which was badly affected due to a decline in the tourism sector The industry expects uniformity in the kind of luxury taxes throughout the country. therefore. GOODS AND SERVICES TAX (GST) IN INDIA The multi level taxes on goods and services in the present regime leads to distortion and inefficiency in tax administration and raises compliance issue. The Delhi government has proposed to reduce the luxury tax on hotels and restaurants in the city from the current 12.

and. Customs. under State List. Purchase Tax. the final consumer ends up bearing the full burden of tax without any set off benefit. Decrease in effective tax rate for many goods. State Excise duty. Thus. Removal of the current cascading effect of taxes. Generally for services to be taxed global best practices are considered. 3. This is achieved by working tax on the full intrinsic value of the goods or service and giving set off/credit of tax suffered at previous stage. Page | 31 central and state level. Luxury Tax. Service Tax under Union List and Sales Tax. the supply to be taxed could be Business-to-Business or Business-to-Consumer depending on the feasibility in individual case.Indirect tax – Fiscal Policy and Corporate Tax MEANING OF GST The concept of Goods and Services Tax (GST). Entertainment tax. BENEFITS OF DUAL GST The Dual GST is expected to be a simple and transparent tax with one or two CGST and SGST rates. called input stage. Reduction of transaction costs of the taxpayers through simplified tax compliance. any supply not involving goods will be supply of service. However. In this system. Further. Any transfer of right to use goods will constitute supply of goods. Entry Tax. to avoid cascading effect. Central Sales tax. the entire supply chain up to final consumer gets taxed with in-built mechanism of input stage credit. The supply is sub-classified as destination and consumption based from taxation perspective. which is also called Value Added Tax (VAT). . the ambit for services will be very large. 4. Octroi Tax on consumption or sale of electricity. Value Added Tax. etc. As supplies not involving goods will be supply of service. it is aiming at a comprehensive GST as a substitute for a multi-tax regime. The GST will subsume present indirect taxes of Central Excise. the tax is worked out on the value-added component of the supply. The dual GST is expected to result in:1. Reduction in the number of taxes at the 2. The taxable event is ‘supply of goods’ and ‘supply of services’. Thus. is a tax on every economic supply in the distribution chain.

Page | 32 .Indirect tax – Fiscal Policy and Corporate Tax 5. would be impacted by GST. Increased tax collections due to wider tax base and better compliance. WHO WOULD BE IMPACTED: All businesses. Consequently. whether engaged in sales / supply of goods or the present 10% to approximately supply of services. ERP. As regards services. if not in the near term but in the medium to long term. IMPACT ON PRICES OF GOODS AND SERVICES The GST is expected to foster increased efficiencies in the economic system thereby lowering the cost of supply of goods and services. The expectation is that the dealers would start passing on the benefit of the reduced tax incidence to the customers by way of reduced prices. a reduction in the prices of goods and services. there is an expectation that the aggregate incidence of the dual GST will be lower than the present incidence of the multiple indirect taxes in force. the implementation of the GST is expected to bring about. dealer margins etc. product pricing. in the Indian context. Further. The impact would be on supply chains. it could be that their short term prices would go up given the expectation of an increase in the tax rate from 14% to 16%.

It will encourage expansion of tax base. rationalize tax structure and will improve efficiency of tax administration. It would encourage voluntary tax compliance. Truly unified domestic common market is the ultimate object of tax reform process which can be achieved by simplifying the tax system and for this abolition of too many levels of tax slabs and integration of services under one umbrella of ‘GST’ is the only way. Under the present scenario. Page | 33 . reduce compliance and transaction cost and improves the tax to GDP ratio. discourage tax evasion. it has become all the more necessary to have a Single tax on all goods and services.Indirect tax – Fiscal Policy and Corporate Tax CONCLUSION Bringing greater transparency in tax system and removing inequities amongst different taxpayers and bleaching ‘gray economy’ is a challenging task.

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