Indirect Taxes an overview
Indirect tax is levied on goods and services rather than on income or profits. It is most often thought as a tax that is shifted from one taxpayer to another, by way of an increase in the price of the good. Fuel, liquor and cigarette taxes are all considered examples of indirect taxes. The Central Board of Excise & Customs (CBEC)(Department of Revenue ,Ministry of Finance ,Govt Of India) is responsible for formulation of policy relating to levy and collection of Indirect taxes namely Customs, Central Excise and Service tax. The indirect tax system in India has undergone extensive reforms for more than two decades. India is still standing on the threshold of an opportunity to streamline its indirect tax regime in the country. The framework of Indirect taxes is presently complex not only for the trade but also for the government. The Indirect tax system in India has undergone extensive reforms for more than two decades.
Liberalisation of the Indian economy in 1992 forced the government to undertake indirect tax reforms so that the Indian industry can face international competition and economic growth can be accelerated. Peak rate of Customs duty was gradually reduced from 300 % to 10% .Excise duty reduced from peak of 220% to 16% .The Government’s revenue requirement was met by reduction in tax exemption ,introduction of service tax in 1994 and also significantly higher tax collection due to accelerated economic growth. Reduction in the tax rate also improved compliance and investment climate. Tax administration was improved and modernised .After achieving major success in central tax reforms and reaping its benefits in the form of higher economic growth and revenue expansion, it was realised that without undertaking tax reforms at the state level, the Indian economy will remain fragmented and the industry cannot derive significant gains. This led to the introduction of uniform VAT at state level in 2005 multi rate sales tax. It was a major step forward towards making India a one common economic market. But even after these reforms, it is still a highly fragmented and distortionary tax structure characterized by multiple tax rates, barriers to inter-state trade, and cascading of taxes. However, these reforms have succeeded in preparing the ground for the introduction of a comprehensive goods and services tax (GST).
Liberalisation of the Indian economy in 1992 forced the government to undertake indirect tax reforms so that the Indian industry can face international competition and economic growth can be accelerated. Peak rate of Customs duty was gradually reduced from 300 % to 10% .Excise duty reduced from peak of 220% to 16% .The Government’s revenue requirement was met by reduction in tax exemption ,introduction of service tax in 1994 and also significantly higher tax collection due to accelerated economic growth. Reduction in the tax rate also improved compliance and investment climate. Tax administration was improved and modernised .After achieving major success in central tax reforms and reaping its benefits in the form of higher economic growth and revenue expansion, it was realised that without undertaking tax reforms at the state level, the Indian economy will remain fragmented and the industry cannot derive significant gains. This led to the introduction of uniform VAT at state level in 2005 multi rate sales tax. It was a major step forward towards making India a one common economic market. But even after these reforms, it is still a highly fragmented and distortionary tax structure characterized by multiple tax rates, barriers to inter-state trade, and cascading of taxes. However, these reforms have succeeded in preparing the ground for the introduction of a comprehensive goods and services tax (GST).
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