PUBLIC REVENUE

TRAINING ON PUBLIC FINANCIAL

MANAGEMENT AND
ACCOUNTABILITY

Session objectives

History of taxation in India

Constitutional Framework Fiscal
F d li
Federalism
What is Public Revenue?

Components
Canons of Taxation
Objectives of taxation in developing economies
Characteristics of a g
good tax system
y
Incidence and Impact of taxation
2

Tax and Non tax revenues

Trends in tax and non tax revenues
Tax revenues Direct and Indirect taxes
Approaches to an efficient tax system
Tax system reforms

Taxation in India

It was only for the good of his subjects

that he collected taxes from them, just
as the Sun draws moisture from the
Earth to give it back a thousand fold
fold"
--Kalidas
Kalidas in Raghuvansh

The origin of the word "Tax" is from "Taxation" which

means an estimate. These were levied either on the sale
and purchase of merchandise or livestock and were
collected in a haphazard manner from time to time
time.
There are references both in Manu Smriti and
Arthasastra to a variety of tax measures. Manu, the
ancient sage and law-giver
law giver stated that the king could
levy taxes, "little by little, as a leech, calf or bee, sucks
blood, milk or honey" thereby emphasizing the need to
extract only what can be spared.
The wise sage advised that taxes should be related to
the income and expenditure of the subject. He, however,
cautioned the king against excessive taxation and stated
th t b
that
both
th extremes
t
should
h ld be
b avoided
id d namely
l either
ith
complete absence of taxes or exorbitant taxation.
5

Traders and artisans should pay 1/5 th of their

profits in silver and gold, while the agriculturists
were to pay 1/6th
1/6th, 1/8th and 1/10th of their produce
depending upon their circumstances.
The detailed analysis given by Manu on the subject
clearly shows the existence of a well
well-planned
planned
taxation system, even in ancient times.
Taxes were also levied on various classes of people
lik actors, dancers,
like
d
singers
i
and
d even dancing
d
i girls.
il
Taxes were paid in the shape of gold-coins, cattle,
grains, raw-materials and also by rendering personal
service.
i
6

Kautilya s Arthasastra
Kautilya's
Arthasastra, written sometime in 300 B.C.was
B C was the first
authoritative text on public finance, administration and the fiscal
laws in this country. A major portion of Arthasastra is devoted by
Kautilya to financial matters including financial administration.
C ll ti off land
Collection
l d revenue formed
f
d an important
i
t t source off
revenue to the State. The State not only collected a part of the
agricultural produce which was normally one sixth but also levied
water rates, octroi duties, tolls and customs duties. Taxes were
also
l collected
ll t d on forest
f
t produce
d
as wellll as from
f
mining
i i off metals
t l
etc. Salt tax was an important source of revenue.
Collection of Income-tax was well organised and it constituted a
j part
p
of the revenue of the State. A big
g portion
p
was
major
collected in the form of income-tax from dancers, musicians,
actors and dancing girls, etc. This taxation was not progressive
but proportional to the fluctuating income.
General Sales
Sales-tax
tax was also levied on sales and the sale and the
purchase of buildings was also subject to tax. Even gambling
operations were centralised and tax was collected on these
7
operations.

According to him, the power of the government depended upon

the strength of its treasury. He states "From the treasury,
comes the power of the government, and the Earth whose
ornament is the treasury
treasury, is acquired by means of the Treasury
and Army"
The land revenue was fixed at 1/6 share of the produce and
import and export duties were determined on advalorem basis.
The import duties on foreign goods were roughly 20 per cent of
their value. Similarly, tolls, road cess, ferry charges and other
levies were all fixed. Kautilya's concept of taxation is more or
less akin to the modern system of taxation. His over all
emphasis was on equity and justice in taxation.
taxation

The history of Indian Taxation starts with the first Income Tax
Law introduced in 1860 consequent on the financial difficulties
arising from the Mutiny of 1857.
The tax was in force for a period of 5 years. It lapsed, but was
revived in the form of a Licence Tax on Trades and
Professions. Later in 1868 a new tax known as "Certificate
Tax", not materially different from the "Licence
Tax
Licence Tax
Tax" was
introduced which later came to include agricultural income as
well.
With the improvement of financial position, 1873 witnessed the
abolition
b l
off Income tax. This
h was not to last
l
for
f long.
l
The
h
Great Famine 1876 to 1878 brought in the revival of Direct
Taxation. This had the character of Licence Tax on trader and
a cess on land. The tax was based on local condition which
stressed the fact that the power to tax should be based on the
ability to bear the burden and was enforced through local Acts.

In time a major improvement was that instead of

specifying the rates of taxation in the Schedules to
the Act it left the rates to be determined byy the
Annual Finance Act to give taxation structure greater
flexibility and economic relevance. This feature has
survived till today.
The period subsequent to 1939 witnessed the Second
World War which necessitated raising higher
revenues on the
th lland
d and
d a closer
l
monitoring
it i on
large incomes which were made by certain assessees
because of the war condition.
10

Systematic attempt to evolve a tax system in independent

India started with the implementation of the report of the
Tax Enquiry Commission (1953)
Various objectives as raising the level of savings,
investments, effecting resources transfer from private to
public
bli sector,
t
achieving
hi i a desired
d i d state
t t off redistribution.
di t ib ti
Direct taxes enquiry committee (1971) recommended
reduction in tax rates. On the indirect taxes side,
simplification attempted by Indirect taxes Enquiry
committee (1977).
Initiation of market based reforms in 1991, Tax Reforms
committee (1991) laid down framework/roadmap for direct
and indirect tax reform, following the economic crisis
11

Reforms included

Broadening the tax base

Minimising exemptions/concessions
Drastic simplification of laws and
procedures
Building a proper information system and
computerisation of tax returns
Revamping and modernisation of
administrative and enforcement machinery
12

Fiscal Federalism

The authority to levy a tax is derived from

the Constitution of India, which allocates the
power to levy various taxes between the
Centre and the State.
An important restriction on this power is
A ti l 265 off the
Article
th Constitution
C
tit ti which
hi h states
t t
that "No tax shall be levied or collected
except by the authority of law." Therefore
each
h tax levied
l i d or collected
ll
d has
h to be
b backed
b k d
by an accompanying law, passed either by
the Parliament or the State Legislature.
g
13

Article 246 of the Indian Constitution

Constitution, distributes legislative
powers including taxation, between the Parliament and
the State Legislature. Schedule VII enumerates these
subject
j
matters with the use of three lists;;
List - I entailing the areas on which only the Parliament is
competent to make laws,
List - II entailing the areas on which only the State
l i l t
legislature
can make
k laws,
l
and
d
List - III listing the areas on which both the Parliament
and the State Legislature can make laws upon concurrently.
Separate heads of taxation are provided under lists I and II.
II
There is no head of taxation in the Concurrent List (Union
and the States have no concurrent power of taxation)
Any tax levied by the government which is not backed by
law or is beyond the powers of the legislating authority may
be struck down as unconstitutional.
14

Sharing of tax revenues raised by the centre is explicitly

mandated in the constitution (Article 280) in recognition
of the vertical imbalance implicit in the assignment of the
powers and
d functions
f
ti
tto th
the ttwo llevels
l off governmentt
(the 'federal rationale').
The constitution also authorises the centre ((and the
states) to make grants for any public purpose (Article
282)
Vertical and horizontal imbalances between centre and
states are addressed by various articles in the
constitution like Article 268, which facilitates levy of
d i by
duties
b the
h Centre
C
but
b equips
i the
h states to collect
ll
and
d
retain the same.

15

Similarly,
Si
il l there
th
are Articles
A ti l 269,
269 270,
270 275,
275 282 and
d 293 , allll off
which specify ways and means of sharing resources between
Union and States.
Thus there are both mandatory and enabling provisions in the
Constitution for facilitating a wide-ranging transfer of resources,
arranged
g in a systematic
y
manner,, through
g
1) Levy of duties by the Center but collected and retained by the States.

2) Taxes and duties levied and collected by the Center but assigned in
whole to the states
3) Mandatory sharing of the proceeds of income tax
4) Permissible participation in the proceeds of the Union excise duties
5) Statutory grants in-aid of the revenues of states
6)) Grants for
f any public
bl purpose and
d
7) Grants of loans for any public purpose

16

Planning Commission too has been giving substantial

assistance to the States to finance developmental plans.
Th assistance
The
i t
is
i given
i
both
b th as grantt and
d loan
l
in
i the
th
ratio 30:70 for the larger States and 90:10 for the special
category
g y States.
Central Ministries give assistance to the States to
implement Central schemes. The Central sector schemes
are entirely funded by the Central government and the
States are merely implementing agencies. The centrally
sponsored schemes are shared cost programs requiring
the States to make matching contributions, the matching
ratio differing with projects.
17

Apart from the above- mentioned provisions, the Indian

Constitution provides an institutional framework to facilitate
Centre State Transfers
CentreTransfers. This body is the Finance Commission,
which came into existence in 1951, under Article 280 of the
Indian Constitution.
The
h functions
f
off the
h Finance Commission are

Distribution of net proceeds of taxes between Centre and the States, to

be divided as per their respective contributions to the taxes.
Determine factors
f
governing Grants-in Aid
d to the
h states and
d the
h
magnitude of the same.
Work with the State Finance Commissions and suggest measures to
augment the Consolidated Fund of the States so as to provide
additional resources to Panchayats and Municipalities in the state.
18

Weaknesses in existing system of C

C-S
S
transfers

Multiplicity of transfer channels each following its own

criteria/formula - nearly 40 percent of the transfers have taken place
through other channels, mainly Planning Commission (PC) and the
Ministry of Finance and other central agencies, emergence of foreign
aid agencies also as sources of conditional funds routed under
"additional central assistance" for state plans
Limitations on the scope of FC
FC'ss transfer, with the exclusion of plan
revenue expenditure and so plan grants from their purview.
The transfers may act as a dampener on the revenue raising efforts
of state governments. For eg. For special category states, the
transfers may have created a dependency syndrome.
'gap filling' approach of the FCs whereby grants-inaid are
recommended for states found to be in deficit in their revenue
budget after taking account of their share of central taxes under the
FC's devolution formula
19

Canons of taxation

1. Canon of Equality: means the principle of justice, i.e., in

accordance to ability to pay. The cannon of equality does
not mean that every taxpayer should pay at the same
sum. Nor does it means that they should pay at the same
rate, which means proportional taxation. The amount of the
tax paid is to be in proportion to the respective abilities of the
taxpayers. This clearly points to progressive taxation, i.e.,
taxing higher incomes at higher rates.
2 C
2.
Canon off C
Certainty:
t i t means the
th ttax which
hi h each
h individual
i di id l
is bound to pay ought to be certain, and not arbitrary. The
time of payment, the manner of payment, the quantity to be
paid,
id ought
ht to
t be
b clear
l
and
d simple
i l to
t the
th taxpayer.
t
20

3. Canon of Convenience: Every tax, according to Adam Smith,

ought to be levied at the time or in the manner in which it is most
convenient for the taxpayers
p y
to pay
p y their dues. For example,
p if a tax
on land or house is collected at a time when rent is expected to be
received, it satisfies the canon of convenience. If the tax can be paid
through cheque, or credit card, or internet, the manner is convenient,
b not so iff it is to b
but
be paid
d personally
ll to the
h taxing authority.
h
4. Canon of Economy: The tax will be economical if the cost of
collection is very small. If, on the other hand, the salaries of the
officers
ff
engaged
d in collecting
ll
the
h tax eat up a big
b portion off the
h tax
revenue, the tax is certainly uneconomical. Similarly, such other huge
and unnecessary administrative costs will make the tax collection an
extravagant task.
task If there is corruption or oppression involved in the
frequent visits to the income tax office and the odious examination by
the taxing officer the canon of economy is not satisfied.
21

5.Fiscal Adequacy or Productivity: The State should be able to

function with the revenue raised from the people by means of
taxes. The tax proceeds should adequately cover the government
expenditure
di
and
d the
h government does
d
not run into
i
a deficit.
d fi i But
B at the
h
same time, the government should also not err on the side of
excess. In their zeal to raise more revenue, they should not cripple, in
any manner
manner, the productive capacity of the community
community.
6. Canon of Elasticity: The canon of elasticity is closely connected
with that of fiscal adequacy. As the needs of the State increase, the
revenue should also increase otherwise they will cease to be
adequate. To meet an emergency or a period of stress and strain, the
government should be in a position to augment its financial
resources Income tax is considered to be an elastic tax
resources.
tax, as it can be
considerably increased when needed.
22

7. Canon
7
C
off Fl
Flexibility:
ibilit Flexibility
Fl ibilit means that
th t there
th
should
h ld be
b
no rigidity in the tax system so that it can be quickly adjusted to
new conditions; and elasticity means that the revenues can be
increased. The presence of flexibility is a condition of
elasticity.
8. Canon of Simplicity:
p
y system
y
of taxation should be simple,
p ,
plain and intelligible to the common understanding. This canon
is essential if corruption or oppression is to be avoided.
9 Canon of Diversity: A single tax or only a few taxes will not
9.
do. There should be a variety of taxes so that all the citizens,
who can afford to contribute to the State revenue, should be
made to do so.
so They should be approached in a variety of
ways. There should be a wise admixture of direct and indirect
taxes. But too great multiplicity will be bad and uneconomical. 23

10. S
10
Social
i l and
dE
Economic
i Obj
Objectives:
ti
I modern
In
d
times,
ti
economists
i t
emphasised that the tax system should be based on the principle that the
effects of taxation should be compatible with the economic and social
objectives and preferences of the community
community. The social and economic
objectives of a standard tax system are:

(i) Reduction of inequalities in the distribution of income and

wealth: For this purpose
purpose, progressive taxes must be levied instead of
proportional taxes.
(ii)Accelerating economic growth: For this purpose, the tax system must
be so designed as to raise the rates of saving and investment. This is a very
important objective for less developed countries (LDCs), where there is a
deficiency of savings and investments.
(iii)Price stability: to ensure stable economic growth. When LDCs launch
economic development programme they have to face inflation or soaring
prices. An integrated tax policy would solve this problem.
24

OBJECTIVES OF TAXATION IN
DEVELOPING ECONOMIES

(a) Ability to contribute to economic development: Each

person should be made to contribute to economic development,
according to his ability to do so. All his unused capacity must be
utilised, through appropriate tax measures, for purposes of economic
development. Suppose a person is making a large saving but he lets it
lie idle. Such saving
g must be mobilised and channelised into
investment.
(b) Mobilisation of economic surplus: In all backward countries,
a significant
g
portion
p
of national output
p goes
g
to the big
g landlords and
other idle rich people. A large portion of their income is spent on
conspicuous consumption, e.g., building of palaces, etc. This is
unproductive expenditure and a waste from the point of national
development. Economic growth can be accelerated if an appreciable
portion of this surplus income is mobilised and made available for
25
productive investment.

(c) Increasing the incremental saving ratio: As economic

development proceeds apace, incomes rise. But there is a danger
that p
propensity
p
y to consume mayy also increase so that extra incomes
generated in the economy are utilised in consumption rather then
invested in production. This has to be prevented. The consumption
should not be allowed to increase in proportion to increase in
income. For this
h purpose commodity
d taxes are quite effective.
ff
(d) Income elasticity of taxation: In backward economies, the
share of taxation out of the national income is less than 10%. This
share
h
must be
b progressively
l raised
d as nationall income increases as a
result of economic development. This needs built-in flexibility in the
tax system. Progressive taxation of income provides this flexibility.

26

(e) Equity: The canon of equity demands that the

burden of economic development must be distributed
among the different sections of the community
equitably. That is why the richer classes are prevented
from increasing their consumption in proportion to the rise
in their incomes
incomes. This is how they make a sacrifice for the
economic development of their country. The poor people
also make a sacrifice because rising prices curtail their
consumption In this manner
consumption.
manner, sacrifices in consumption
are shared by all sections of the society. Thus, the
burden of economic development is equitably distributed
among all.
all This is also known
kno n as horizontal
ho i ontal equity
eq it .
27

Characteristics of a good taxation system

(a) Simple, financially adequate and elastic: The tax system

should be simple, financially adequate and elastic. In other words,
the system should be easily intelligible; it should be sufficiently
productive of revenue; and the tax structure should be adaptable to
meet the changing requirements of the economy.
(b) Broad based: The tax system should be as much broad-based
broad based
as possible. It should be multiple tax system. There should be
diversity in the system. But too great multiplicity in tax system should
be avoided.
(c) Administratively efficient: The tax system should be efficient
from the administrative point of view. It should be simple to
p for evasion or accumulation
administer. There should be little scope
of arrears. It should be foolproof and knave-proof. Chances of
corruption should be minimised.

28

(d) Balanced and harmonious: Another important

characteristic of a good tax system is that it should be a
harmonious whole. It should have a balanced structure. It
should be truly a system and not a mere collection of isolated
taxes. Every tax should fit in properly in the system as a whole
so that it is a part of a connected system. Each tax should
occupy a definite and due place in the financial structure.
(e) Ensuring the reduction of economic inequalities: A
good tax is that it should be an instrument for the reduction of
economic inequalities. The purpose of public finance is not
merely to raise revenues for the State but to raise the revenue
in such a manner as to reduce the economic inequalities. In
thi manner, the
this
th State
St t may also
l b
be able
bl to
t divert
di t idle
idl resources
in bank balances or lockers to more productive areas.
29

(f)
Ensuring economic stability: From the point of view of
ensuring economic stability, it is necessary that the tax system must
be progressive in relation to changes in the national income. This
means that when national income rises, an increasing part of rise in
income should automatically accrue to the tax authorities.
(g) Ensuring that national income is increasing: The tax
system should ensure that the national income is increasing during
boom periods. Similarly, in depression, tax revenues should fall faster
than income so that the p
purchasing
g power
p
of people
p p does not fall as
fast as their pre-tax income. Thus, an overall progressive tax system
is an important factor in ensuring stability.

30

(h) An
A instrument
i t
t off economic
i growth:
th For
F d
developing
l i economies,
i
the
th
tax system has to serve as an instrument of economic growth. Economic
development rather than economic stability is the objective of under-developed
y
must be so shaped
p as to accelerate economic
countries. Their tax system
development. For this purpose, it must mobilise the required resources and
channelise them into investment. It must, in short step up savings and
investment and raise the level of income and employment in the economy.
(i)
S i ll advantageous:
Socially
d
t
Th tax
The
t system
t
should
h ld be
b socially
i ll
advantageous and promote general economic welfare. From this point of view,
taxes on goods of mass consumption should be avoided. The burden of tax on
basic items should not be excessive.
(j)
Optimum allocation of resources: The tax system should be so
framed as to ensure that the productive resources of the economy are optimally
allocated and utilised. For this purpose, it is essential that the tax system
should be economically neutral. In other words, it should interfere as little as
possible with the consumers choices for consumption goods and the producers
choices regarding the use of factors.
31

Sources of Public revenue

Public revenue

Tax revenue

Direct taxes eg.

Income tax, wealth
tax

Non-tax revenue

Indirect taxes eg.

Central excise,
customs, VAT

Interest receipts,
dividends and fees
from licenses,
passports
p
p

32

Tax revenue

Non tax revenue

A tax is a compulsory levy imposed

by a public authority on persons and
organizations to meet public
expenditures
A tax is the compulsory payment
made to the government. Refusal to
pay the tax is a punishable offence.
Every tax involves some sacrifice on
partt off th
the ttax payer.
A tax is not a fine or penalty.

Non Tax Revenue includes all

revenues other than taxes, accruing
to the Government.
These are internallyy generated
g
funds.
These sources of revenues are:
Administrative revenues.
Co
Commercial
e c a revenues.
e e ues
Grants and gifts.

33

T d off ttax and

Trends
d non ttax
revenues

Rs. In crore
Year

2001-02
2001
02
2002-03
2003-04
2004-05
2005-06
2006-07
006 0
2007-08
2008-09
2009 10
2009-10
2010-11

Tax
revenues

133532
158544
186982
224798
270264
351182
439547
443319
465103
534094

Non tax
revenues

67774
72789
77801
79894
77738
82909
101542
93734
106959
145189

Total
revenues

201306
231333
263813
304692
348002
434091
541089
537053
572062
679283

% of tax
revenues
to total
revenue
e en e
receipts

66
69
71
74
78
81
81
83
81
79

% of non
tax
revenues
to total
revenue
receipts

34
31
29
26
22
19
19
17
19
21
35

36

COMPONENTS OF TAX REVENUE

Year

2006-07
2007-08
2008-09
2008
09
2009-10
2010-11

Corpora Income Wealth

tion tax tax
tax

144318
192910
213395
255076
301331

80408
111820
106074
124991
120568

240
340
389
511
603

Customs

86327
104118
99879
84477
115000

ED

117612
123611
108613
102000
132000

ST

37597
51301
60941
58000
68000

TOTAL

351182
439547
443319
465103
534094

37

Percentage share of taxes in total tax

revenues

38

Direct vs Indirect taxes

Direct taxes

Indirect taxes

Direct tax is a tax imposed and

collected directly from the
person on whom it is legally
imposed.
It is a tax the incidence of which
falls on the person concerned
and cannot be shifted o
or passed
on to another person.
The direct taxes comprise
income tax, corporation tax,
capital gains tax
tax, estate duty,
duty
gift tax, wealth tax.

An indirect tax (such as sales tax, value added

tax (VAT), is a tax collected by an
i t
intermediary
di
(such
( h as a retail
t il store)
t ) from
f
the
th
person who bears the ultimate economic
burden of the tax (such as the consumer).
The intermediary later files a tax return and
forwards the tax proceeds to government with
th return
the
t
Indirect taxes are imposed on commodities.
The impact and incidence of indirect taxes
may be on different persons. The person on
whom the tax is imposed bears the impact,
while the person who ultimately pays it bears
the incidence.

39

Year

DIRECT
TAXES

INDIRECT
TAXES

%OF
DIRECT
TAXESTO
TOTALTAX TOTALTAX
REVENUES REVENUES

%OF
INDIRECT
TAXESTO
TOTALTAX
REVENUES

2006-07

225045

248467

473512

48

52

2007-08

312220

280926

593146

53

47

2008-09

319892

285405

605297

53

47

2009-10

380582

252512

633094

60

40

2010 11
2010-11

422508

324142

746650

57

43
40

41

Percentage share of DT/INDT in total tax

revenues

42

Trend in Indirect tax collection

43

COMPONENTS OF NON TAX REVENUE

YEAR

INTEREST
RECEIPTS

NET
CONTRIB
UTIONS
BY PSUs

TOTAL
NON TAX
REVENUE
S

2006-07

21550

37534

82909

2007-08

23804

41711

101542

2008-09

21141

44485

93734

2009-10

19205

55275

106959

2010-11

19254

55747

145189

% of
interest
receipts
in total
non tax
revenue

% of PSU
receipts
in total
non tax
revenues

26

45

23

41

23

47

18

52

13

38

44

45

Tax reforms in the past

Direct taxestaxes
1973-74 11 tax slabs, rates from 10 to 85 %, surcharge 15%
1991- simplified tax structure 3 slabs, 1997-98 3 slabs with rate
10-30%
Excise duties
1970s 24 different rates from 2 to 100%
1996-97 MODVAT followed by CENVAT in 2001
Customs
1990-91- complex tariff structure
structure, rates from 0 to 400%
1995-96 peak rate down to 50% , 2003-04 peak rate 25%
Reforms in State tax systems
Shift from cascading type sales tax to VAT
reduction in the Central Sales Tax rate to 2%, from 4%, as part of a
46
complete phase out of the tax

Directt ttaxes code

Di
d Budget
B d t 2009
2009-10
10
Single Code for direct taxes: All the direct taxes have been brought
under a single Code and compliance procedures unified. This will
eventually
t ll pave the
th way for
f a single
i l unified
ifi d taxpayer
t
reporting
ti system.
t
Use of simple language: With the expansion of the economy, the
number of taxpayers can be expected to increase significantly. The bulk
off th
these ttaxpayers will
ill be
b smallll paying
i moderate
d t amounts
t off tax.
t
Therefore, it is necessary to keep the cost of compliance low by
facilitating voluntary compliance by them. This is sought to be achieved,
inter alia,
alia by using simple language in drafting so as to convey,
convey with
clarity, the intent, scope and amplitude of the provision of law. Each
sub-section is a short sentence intended to convey only one point. All
directions and mandates, to the extent possible, have been conveyed in
active voice. Similarly, the provisos and explanations have been
eliminated since they are incomprehensible to non-experts.
47

Reducing the scope for litigation: Wherever possible, an attempt

has been made to avoid ambiguity in the provisions that
invariably give rise to rival interpretations.
Flexibility: The structure of the statute has been developed in a
manner which is capable of accommodating the changes in the
structure of a growing economy without resorting to frequent
amendments. Therefore, to the extent possible, the essential
and general principles have been reflected in the statute and the
matters
tt
off d
detail
t il are contained
t i d iin th
the rules/Schedules.
l /S h d l
To ensure that the law can be reflected in a Form: For most
taxpayers, particularly the small and marginal category, the tax
law is what is reflected in the Form. Therefore, the structure of
the tax law has been designed so that it is capable of being
48
logically reproduced in a Form.

Consolidation of provisions: In order to enable a better

understanding of tax legislation, provisions relating to
definitions incentives,
definitions,
incentives procedure and rates of taxes have
been consolidated. Further, the various provisions have
also been rearranged to make it consistent with the
general scheme of the Act
Act.
Providing stability: At present, the rates of taxes are
stipulated in the Finance Act of the relevant year.
Th f
Therefore,
th
there iis a certain
t i degree
d
off uncertainty
t i t and
d
instability in the prevailing rates of taxes. Under the
Code, all rates of taxes are proposed to be prescribed in
the First to the Fourth Schedule to the Code itself
thereby obviating the need for an annual Finance Bill.

49

Goods and service tax to come into force from april

2012
Will lead to abolition of other taxes as CST
CST, VAT,
VAT entry
tax, stamp duty, tax on consumption or sale of electricity,
thus avoiding multiple layers of taxation
Comprehensive levy on manufacture, sale and
consumption of goods Central GST and State GST
Through
g tax credit mechanism,, tax is collected on value
added goods and services at each stage of purchase/sale
Will be levied only at destination point and not at various
points (eg
(eg. Excise and VAT)
Expected to lead to fall in prices as dealers may pass on
50
benefits of reduced tax to consumers

Thank you