December 26 2005
The tax scenario in India
When VAT was about to come into effect all over India and there was opposition from all and sundry, the Indian Government stuck to one argument that many countries around the world have implemented VAT. Agreed, sir. But how many countries in the world have as many other taxes as we have in India? Here’s a very basic scenario.
A manufacturer starts a new business, floats a partnership firm/limited company. He first has to pay stamp duty (ad valorem in certain cases).
He first purchases machinery and raw materials. He will pay Sales Tax/VAT (or Customs Duty in case of Imports).
Once his ready goods leave his factory, he pays Excise Duty.
On transporting his good from one place to other place, he pays Octroi.
On selling these things and earning profit, he pays Income Tax.
After paying all these taxes, if he still manages to accumulate some wealth, he pays Wealth Tax. And we have not even considered under the table taxes that he has to pay to anti-social elements in the government departments.
Earlier there ware two more taxes, Gift Tax and Estate Duty. Gift Tax Act was abolished and more logical provisions covering gifts were introduced in the Income Tax Act. Estate Duty was paid on inheritance of assets and was abolished just before it was Indira Gandhi’s turn to pay it.
When will government simplify the tax structure in India? Is there any inclination to do so?
I have not even mentioned here Service Tax, Interest Tax, Fringe Benefit Tax, etc. 
The current finanace minister, Mr. P. Chidambaram, has a one point program of levying and collecting more and more taxes. But are they used in the right way? As per one newspapers report, Education Cess of 2% levied across all the taxes and helped the government amass more than 6000 crores. But it remains unused till date!
Hi:
Allow me to add a few lines to your post :
1. You start a business and pay stamp duty
2. You pay commercial property taxes if you want to run an office…failing which, as has happened in the case of delhi, your office gets sealed
3. You employ people, you pay fringe benefits tax…and that too on a presumptive basis
4. You provide a service, you pay service tax
5. You invest, you pay a securities transaction tax
6. You make profits, you pay income tax
7. You want to reward shareholders by paying them a dividend, you pay dividend distribution tax
8. You manufacture, you pay excise duties
9. You sell and pay VAT
10. You accumulate wealth, you pay wealth tax
11. You buy a car, you pay road tax
12. You buy a house, you pay municipal tax
13. You die after leaving a will, your next of kin pay a court fee to get your property which you have already decided to leave to them after having paid all the taxes described above.
Of course, Chidambaram may not be responsible for all of this, but someone should conduct a study of how much of income is paid out in taxes of any kind. Only then will we have a realistic estimate of costs of compliance with our outdated laws and rules.
Cheers,
Kalyan
The newly introduced service tax on rental income, with an object of taxing, corporates engaged in leasing of office space with plug-n-play equipment, has indirectly hurt several property owners reeling under the fixed terms of contract, for in the case of properties covered by rent control laws, where even the regular yearly increments of rents, cannot be enforced without resorting to process of law, which again takes few years, before being finalized. Now, if the corporates who enjoy the advantage of revising service charges (read – rent) of leasing their properties with plug and play are equated with these landlord, the corporate may end-up passing on the tax to the occupants (read – tenants), thereby don’t feel the pinch, while all those individual landlord, big or small would end up either in litigation or paying higher tax. The indirect tax introduced, directly hits them. I believe the definition of “person” in the act, so far it deals with service tax on property rent, ought to have been simultaneously revised to read as corporate entities AND leasing of property ought to have been explained as those, being with variable terms of contract and tenure.