What is Tax….? It is a monetary, pecuniary or compulsory burden that is levied or put on each and every individual by the government. The payment of tax is inevitable that’s why a funny thing that is said about the tax is that “death comes once, but the payment of tax comes every year”. When the topic of tax comes, being a common man there are two questions that arise in our mind the first one is why the government needs to collect tax and the second one is what does the government do with the amount of tax collected? Well the answer for the first question is that the amount of tax collected is very huge and is the main source of income for the government. The gross tax receipts for the year 2008-09 is Rs.6, 87,715 Cr whereas according to the budget the estimated amount of tax to be collected in 2009-10 is Rs.6, 41,079 Cr. The answer for the second question is that the government invests the tax collected for providing the amenities and for the development of the society.
The procedure of taxation is very old it is said that the taxation system started from the time around 3000 BC in Ancient Egypt. At that time the main occupation of the people was agriculture and they use to pay one fifth or 20% of their total crop to Pharaoh (ancient Egyptian rulers) as tax. In India the people used to pay tax to the kings and it was mainly in the form of crops. The history also has provided enough evidences that during the rule of King Akbar he had cancelled many forms of taxes. During the British rule it was introduced in the year 1860. There was no act passed so it was just used as a temporary way for the government to get the income it went on till 1886 and in 1886 an Income Tax Act was passed and it was replaced by legislation act of 1918 and later by the Income Tax Act of 1922. This income Tax Act was followed till India got the freedom and as there was an establishment of congress government and adoption of constitution so there was a need for a new income tax act as the prevailing economic condition of post independence India were different to pre independent India and as a result of that a New Income Tax Act was passed in the year 1961. Till today this act is being followed and till today on an average there have been about 25 amendments every year made to this Income Tax Act and because of this some of the experts have opinioned that the Income Tax Act of 1961 has lost its originality and we need to replace it with a new act. Another reason for the talks of changing this act is that the economic conditions of the present year ie 2009 are very different as compared to 1961 and one of the reasons for this might be the liberalization, privatization and globalization that happened in the year 1991. As a result of this a new tax code has been prepared and once it gets passed in the parliament it’s going to be passed as an act.
There are different forms of taxes that are levied by the government some of the examples are customs, excise, toll, tribute, impost etc. The taxes are divided into two types Direct & Indirect but before going to types of taxes there are two terminologies that one needs to understand they are incidence and impact.
Incidence: According to the economic theory it is the point at which the tax is being charged.
Impact: This means the effect that the imposition of tax is going to have.
Now let us understand the meaning of incidence and impact in case of these taxes. Let us take the example of income tax, in case of income tax the tax is paid on the income that is earnt by a person or in other words the person liable and the person who is paying the income tax are both the same.
In the Indirect taxes for example the sales tax the incidence is on the shopkeeper and the impact is on the customer that is when we buy something from that shop we have to pay the sales tax.
The seventh schedule of Indian Constitution gives the right to the government to collect the taxes. There are various kinds of taxes and these are collected by central government, state government, and local municipality. The Central Board of Direct Taxes (CBDT) is the authority which governs or supervises the collection process of the taxes. The CBDT comes under the finance commission and it is the commission which decides as to what is the percentage of total tax collected which must be given to central government, state government & the municipality.
The rates for each of this is given every year by the finance minister in the parliament and when it passed it becomes the finance act of that year. All these taxes are explained in detail below;
The excise duty on alcohol and the income tax on agriculture are levied and collected by the state government.
There are three more terminologies which you need to understand which can make a lot of difference if slightly misunderstood, they are;
The terminology Tax is very familiar to all because all are paying in one or the other way. As we mentioned in this article there are different types of Taxes. Taxes like income Tax, Wealth Tax, etc we are paying directly but Sales Tax, Customs Duty, etc. are paid indirectly. In this article we have tried to include all the basics of Tax. In future we will come up with more informative and indepth articles onTax.
IndianMoney.com Research Associate
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