Tax is a word coined from Taxation which means Estimate.
Tax can be defined as the compulsory contribution to state revenue, or a mandatory liability of the citizen. This is adds to the public wealth the public expense, Social welfare and over all development of the nation.
Taxation was a practice from the ancient times, when governance got its first roots. In India there are two kinds of taxes, direct tax and indirect tax. Direct tax includes taxes on income, wealth etc. which cannot be transferred to another person. Indirect taxes are those taxes a citizen pay indirectly while purchasing goods and services, This is transferable to another person, VAT is an example for such a tax.
The proposed new GST tax system comes under Indirect taxes.
Tax in Ancient Indian History
The concept of taxation is very vivid in Indian history, there are references for the same in Manu Smriti and Kautilya’s Arthashastra . Our modern taxation system inherit some of the concept from these, as taxation should be for maximum social welfare.
The below quote is from Raghuvansha written By Kalidasa praising king Dilipa :
“It was for good of his subjects that he collected taxes from them, just as the Sun draws moisture from earth to give it back a thousand fold.”
It is clear from the above line that tax was common and there is no doubt Indian economy was so developed in those times.
Further to mentioning about the taxation, the ancient scriptures also give instructions about the quantity of the taxation as well.
In Manu Smriti, it mentions that the taxpayer should not be overloaded, trades and artisans should pay 1/5th of their profits in Silver and Gold, Agriculturists should pay 1/6th ,or 1/8 th or 1/10th of their procedure depending up on the circumstances.
Arthashstra, which was written by Kautilya during the Maurian Empire about 2300 years ago, mentioned each tax as strict and specific. The time, manner and quantity of the tax are pre determined. The land revenue was fixed to 1/6 of the production, import and export duties where based on the value of the goods (ad valorem basis) , import duties were roughly 20% of their value, also there were different tolls, cess , charges fixed on road, ferrys etc.
During war and emergencies like flood , famine etc, these system is liable to change, the land revenue could be raised from 1/6th to 1/4th. Also rich people are liable to pay huge donations to the war efforts.
The equality and justice was emphasized in Kautilya’s Arthshastra, where rich people has to pay more tax compared to poor.
Taxes were continued in different forms and quantity from in all the eras, which always underwent vigorous changes attained todays shape.
Income Tax in India (Direct Tax)
Income tax was introduced During British rule in India in 1860 by Sir James Wilson, as a tool to recover loses due to 1857 Sepoy Mutiny. In 1918 new income tax scheme was brought in. In 1922 another Income tax Act replaced it. This new Act continued till 1962 with several amendments.
The current Income Tax Act was passed in 1961, brought into effect from 1962 April 1. This applies to the whole of India and Sikkim including Jammu and Kashmir.
Several amendments have been done on this Act as part of Union budget every year, and an amended version of Income Tax act applicable currently.
Other Direct Taxes
Wealth Tax Act 1957, Directs the taxation process associated with the Net Wealth of an Individual, Hindu Undivided Family(HUF), or a Company possesses on valuation date, applicable to whole India including Jammu and Kashmir and Union territories.. This has been abolished in the Union Budget ( 2016 – 2017 ) presented by Union Finance Minister of India Mr. Arun Jately on 28-Feb-2015 and discontinued with effect from 1 April 2016. The wealth Tax was replaced by an additional surcharge of 2 per cent on super rich with a taxable income of over 1 crore annually.
Another important direct tax is corporation tax or Corporate tax, which can be considered as the income tax for companies or businesses.
Indirect Taxes India
Currently, Indirect tax in India is very complex and they are spread in different types of taxes levied by the Central and State governments on Goods and Services. This was due to introduction of different types of taxes over a time, rather than introducing a well defined system at once.
Tax on Goods as a provincial subject was introduced as part of Government of India Act 1935, Sales tax was introduced in State of Madras in 1935, Which was later introduced to Punjab in 1941 and other places in the following years. In 1994 Service tax was introduced.
In 2002 CENVAT was introduced which is Value Added Tax levied by Central Government, 2003 VAT was introduced in Haryana which is Value Added Tax levied by the State, which was extended to 24 States and Union Territories in 2005. in 2006 VAT was introduced in Rajasthan.
Thus over the different taxes and cess has been introduced on Goods and Services. Some of these Taxes include Central Excise Duty, Service Tax, Countervailing Duty, Special Countervailing Duty, Value Added Tax (VAT), Central Sales Tax (CST), Octroi, Entertainment Tax, Entry Tax, Purchase Tax, Luxury Tax, Advertisement taxes, Taxes applicable on lotteries etc.
As the number of taxes increases, It increases the net value of product and also it make it complex to handle these taxes. The call for unifying the taxes under single roof was answered first time by GST
In 2006-07 Proposal for GST was first discussed. 2016 final GST was introduced and will be in action with effect from 2017.
GST – A brief Overview
As the Tax on Goods and Services are widely spread over different types, the call for a unified system is practically inevitable. GST – Goods and Services Tax is the Single Taxation system.
This will abolish all the other types of Taxes and only GST would be levied.
GST was introduced as a Constitution Amendment in 2016 (101th Amendment). This is considered as a significant section in Taxation in India. This could reduce overall tax burden from goods up to 25 to 30%. Also facilitate free movement of goods from one state to other as the state taxes will be abolished.
GST is Governed by GST council Chairing Union Finance Minister.
India adopted a Dual GST model. Transactions made within a single state will be levied with Central GST (CGST) and State GST (SGST). For inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the Central Government.
GST is a consumption based tax, taxes are paid to the state where services are consumed not the state in which they were produced. States can later redeem the tax from central government which owed to them.
Taxation is not the solution for all, As the famous quote by Winston Churchill
“We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
Still we cannot go without taxation, as it fulfil the public expenditure to a great extend.
Churchill has also said
“There is no such thing as a good tax.”
Tax should be wise and good.
Tax schemes are updated over the period of time during the budgets, as it is suitable for the Growth and Development. The constant updating on income slabs to be more tax payer friendly to bring equality and justice. The tax percentage is growing and the common man being hit by it every time. The efficiency of the government should be increased and the tax payers money should be wisely used and corruption should be controlled. This will bring considerable change in the overall development. As the system grows efficient tax contribution can be reduced which in turn reduce the burden on tax payer.
India has taken the right initiative by introducing the GST. A single and efficient taxation system reduce the implementation cost as well as the tax burden on the products.
An efficient taxation system is the right key to growth and development of the nation.