TAXATION SYSTEM OF INDIA: LEARNING AND LOOPHOLES

INTRODUCTION

As we all are aware by the fact that the earnings of the government are depends on the taxes paid by the citizens of the country. The tax structure adopted by the government of the country determines the economic development and liberalization of the country. The money collected by the different taxes is used to complete different projects, the infrastructure of the country, etc. the two qualities which a tax structure should have, is that, firstly, there should be no chance of tax evasion and secondly, which facilitates ease of doing business. So, by keeping all these points into view, India has also a well-defined and well-structured tax structure. The central, state, local municipal are three tiers of the government having the power to impose taxes.

Tax

Tax may be defined as the payment which is paid by all the citizens of a country to the government, for well and good services. The government uses this money to perform all the functions which are expected by the citizens to perform by the government. Such functions include Military, Infrastructure – Economic and social, Basic amenities, Welfare of the citizens by implementing different schemes for the welfare of the peoples, etc. Further, Taxes are of two types:  direct and indirect taxes.

DIRECT TAXES

Direct taxes may be defined as the taxes which an individual or organization directly pays to the imposing authority without having any mediator between and they are imposed on the income and profits are known as direct taxes. Some of the direct taxes are corporate tax, income tax, corporate tax, Estate duty, Interest Tax, capital gain tax, Wealth Tax, Gift Tax, Land Revenue, Agricultural tax, Hotel receipts tax, Expenditure tax.

THE TAXATION LAWS (AMENDMENT) BILL, 2021

There is a notable case on the capital gain tax titled Vodaphone International Holdings v. Union of India (2012). In this case, the government was added a new amendment as retrospective taxation. This allows a country to pass a rule on taxing certain products, items, or services, and deals and charge companies from a time behind the date on which the law is passed, this route is used to correct any anomalies in their taxation policies that have, in the past, allowed companies to take advantage of such loopholes. But further when Vodaphone company appealed in permanent court of arbitration, then again, the decision was in the favour of the company, the government had to take back this retrospective taxation law because due to this case, the global image of India was already very badly affected.  

On August 5, 2021, finance minister, Ms. Nirmala Sitharaman in Lok Sabha introduced the Taxation Laws (Amendment) Bill, 2021. The passed bill was regarding the amendment in income tax act, 1961, and the finance act, 2012. The income tax act, 1961 was amended in the Finance Act, 2012, by adding the concept of retrospective taxation through which the tax liability is imposed on the profit made by selling the shares of a foreign company on a retrospective basis. retrospective means which was also applicable to the transactions and sharing held before May 28, 2012.  So now, this taxation law (amendment) bill, 2021 is enacted to nullify the provision of retrospective basis taxation held in 2012. 

INDIRECT TAXES

Indirect Taxes may be defined as the taxes which an individual or organization does not pay directly to the imposing authority and these types of taxes are not dependent on the earning or income of an individual. Indirect taxes are only imposed on goods and services and not on earned income and profits. Some examples of the indirect taxes are Custom, Union excise duties, Service Tax, State Excise Duty, Stamp and registration fees, General Sales tax, Taxes on the vehicle, Entertainment tax, Taxes on goods and passengers, Taxes and duties on electricity, Taxes on purchase of sugarcane, etc. On 29th March 2017, a major reform was taking place in the taxation system by enacting a new act titled goods and services tax (GST) act was passed in the parliament and came into force on 1st July 2017. GST replaced many indirect taxes in India. This new tax brought many changes which led to the increase in the economic development of the country shortly and due to the removal and replacement of several taxes, the multiplicity of the taxes also decreases.

DIGITAL TAX IN INDIA  

GAFA TAX: GAFA tax stands for google, apple, facebook, amazon large technologies and online internet companies have to pay taxes to the government.  And concerning this, France’s government has decided to implement a 3% tax on revenues from digital activities of big online companies. 

RECENT AMENDMENTS REGARDING TAX FOR DIGITAL COMPANIES

The government of India has amended two significant amendments in the tax structure in the recent past which are as follows:

THE “EQUALIZATION LEVY”

A tax aimed at foreign digital companies has been in place since 2016 and levied a 6% tax payable on gross revenues from online advertising services, which raked over Rs. 550 crores in the fiscal year 2017-2018.

  • Equalisation levy was made effective on the advertising businesses made in India by the amendment act through taxation of 2% on the same. The amendment was made effective from April 1, 2020.
  • This tax is levied on the e-commerce services and operators for supply or services such as advertisements, data collection, and sharing under some specified conditions.

The concept of “Significant Economic Presence” (SEP)

Introduced for corporate income tax, which expanded to include the following:

  • Any internet protocol (IP) address that is located in India, targeting customers residing in India.
  • Collection and sale of data from such person residing in India or IP address are located in India.
  • Or sale of any such goods and services having the location of IP address in India.

Analysis of Indian Tax Structure

The following below-mentioned table contains the details of the amount raised from Direct Taxes and Indirect taxes by combining both central and state governments.

                                               Revenue receipts in Rs. Crore

 

2013-14

2014-15

2015-16

2016-17

Revenue receipt –

Direct tax

648966

703508

763454

862077

Revenue receipts-

Indirect tax

1230177

1336518

1620967

1822307

From the table, it is concluded that the amount of revenue from indirect taxes is almost double the amount of direct taxes. So, the observation is that the economic development of the country is dependent on indirect taxes and the collection of revenue is reliable on indirect taxes.

CONCLUSION

The government is tried its best to reform the tax structure from time to time according to the need. But still, there are several problems with the taxation system like multiplicity in taxes which is reduced to a high level after enactment of GST, another problem is dependency and dominance of indirect taxes, tax-evasion is also not eliminated yet, the people who indulge in private activities or doing their work are the ones who give rise to the tax-evasion and do not pay income tax properly according to their income. After that, the exemption limit is increasing year by year but the levels of national and per capita income are not still increasing proportionately. The paid amount of direct taxes are very high but the gained tax revenue is very low and dissatisfactory. However, the introduction of GST brought a significant change in the rising of revenue taxes which led to economic development and liberalization.

Author(s) Name: Sakshi (Kurukshetra University, Kurukshetra)

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