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/ services. Tax design comprises a set of rules on the basis of which a tax is charged from the people. The Tax System can be classified into Arbitrary Tax System and Rule based Tax System. The latter leads to increased objectivity, higher degree of predictability, creation of taxpayer rights, better planning and increased satisfaction. Tax design refers to the rules which decide who will pay tax and how much. It does not include procedural rules. The basic design of Tax System is the relation connecting Tax with Tax Base and Tax Rate which is as follows:Tax = Tax Base x Tax Rate All other features that affect tax liability of tax payers are included under specific features like exemptions, deductions, variable and differential rates, other special provisions etc. A person is taxed on the basis of the presence of tax base which is nothing but the element on which tax is imposed. It is objectively quantifiable, variable and linked with economic activity. Tax rate refers to the tax charged on per unit of the tax base. One extraordinary point under tax rates is that under digressive taxation the effective tax rates are progressive in nature. The tax base on which no tax is levied comes under the notion of exemptions. This can be classified as person specific, activity specific, quality specific and quantity specific. Reduction of tax payable on the basis of presence or absence of some other prerequisites, without affecting the tax base and tax rate leads to deductions from tax liability. The significance of tax design can be understood from the economic efficiency of tax, equitable distribution of tax burden in the society, cost of compliance and administration etc. Tax classification under different ways can be there but the primary concern is classification as Direct and Indirect Taxes. The main point of difference between these two is that while the former comprises taxpayer paying tax from his or her own resources, the latter consists of taxpayer collecting the tax from others and paying the same. The former type of taxation is more predictable and levied per unit of time. Tax Incidence refers to the burden of taxation in a market. It always falls on the Surplus ± either producer surplus or consumer surplus. Import duty leads to increase in market price and the incidence of import duty falls on the buyers with reduction in consumer surplus. Export duty results in decrease of market price and the incidence of export duty falls on the suppliers with reduction in producer surplus. The tax incidence in case of non tariff barriers is on buyers with benefit to the suppliers. The benefits from taxation like provision for public goods and services; social welfare gain from income redistribution; and gain from modification of behavior largely overcome its disadvantages like cost of compliance; cost of administration; losses from modification of behavior; and dead weight loss which refers to the real cost of tax i.e. the loss of economic activity resulting from the disincentive. All taxes lead to some distortion of economic activities, which distorts the market equilibrium, market efficiency and social welfare. Taxation is indispensable for the government.