AN INTRODUCTION TO INDIRECT TAXES

Indirect Tax is a tax that is levied on goods & services unlike direct taxes which are levied on individuals. It is called as Indirect Tax as payer who pays tax to government, collects it from ultimate consumers on whom the burden of tax is shifted. Thus, tax payer and tax bearer is not the same person.

Various indirect taxes levied by Government include Excise Duty, Custom duty, Service Tax, Value Added Tax (VAT), Sales Tax etc. This tax is administered by the Central Board of Excise and Custom (CBEC).

Indirect Tax in India constitutes a group of tax laws & regulations such as Central Excise Act 1944, Central Excise Rules 2002, CENVAT Credit Rules 2004, Customs Act 1962, Finance Act’ 1994, Service Tax Rules’ 1994 etc.

These taxes are enforced upon various activities including manufacturing, trading and imports which influence almost all business lines in India.

FEATURES OF INDIRECT TAXES

1.      Source of Revenue

Indirect taxes are a major source of revenue for the Governments worldwide. They contribute about 1/2 of the total tax revenues.

2.      Levied on Goods and services

Indirect taxes are levied both on goods and services.

3.      Results in rise in prices

Since the indirect taxes are imposed on the goods and services, it increases the price of the commodities and the services. Thus, the imposition of the indirect taxes directly affects the prices of the goods and services and leads to the inflationary pressure in the economy.

4.      Promotes social welfare

Higher taxes are imposed on the consumption of the harmful products such as alcoholic products, tobacco, etc. This not only helps in controlling the consumption of the harmful products but also helps the government to collect the substantial revenue.

5.      Regressive in nature

The indirect taxes are collected on the goods and services regressively. And the collection authorities do not discriminate between the rich and the poor. Both have to pay the same rate of indirect taxes. This further increases the income disparities between the rich and poor.

6.      No direct pinch

Indirect taxes are generally inbuilt in the prices of the goods and services and most of the consumers are not actually aware that they are paying the taxes to the government. Thus, the consumers who bear the taxes do not feel the direct impact while paying the indirect taxes.

7.      Shift in tax burden

In case of the indirect taxes, the tax burden shifts from one person to another. For example, excise duty paid by the manufacturer is recovered from the ultimate consumers.

Source:- indirecttaxprofessionals.com (Devalya Advisory LLP)