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Kinds of tax: Taxes are of different types. They are:
1. Direct and Indirect taxes.
2. Proportional, progressive, Regressive and digressive taxes.
3. Specific and advalorem taxes.
4. Value-added tax (VAT)
5. Single and multiple taxes.
According to Dalton, 'A direct tax is one which is really paid by a person on whom it is imposed whereas an indirect tax, though imposed on a person, is partly or wholly paid by another'.
In the case of a direct tax, the tax payer who pays a direct tax is also the tax bearer. In the case of indirect taxes, the taxpayer and the tax bearer are different persons.
Direct taxes are collected from the public directly. That it is to say, these taxes are imposed on and collected from the same person. One cannot evade paying the tax if it is imposed on him.
Income tax, wealth tax, corporate tax, gift tax, estate duty, expenditure tax are good examples of direct taxes.
Taxes imposed on commodities and services are termed as indirect taxes. There is a chance for shifting the burden of indirect taxes. The incidence is upon the person who ultimately pays it. Examples of indirect taxes are excise duties, customs duties and sales taxes (commodity taxes).
The classification of direct taxes and indirect taxes is based on the criterion of shifting of the incidence of tax. The burden of a direct tax is borne by the person on whom it is levied. For example, income tax is a direct tax. Its burden falls on the person who is liable to pay it to the Government. He cannot transfer the burden to some other person.
An indirect tax is initially paid by one person but ultimately the burden of the tax is fully or partially borne by another person. Because there is a possibility of transfer of burden of an indirect tax. For example, the excise duty on a motor-bike is initially paid by the manufacturer. But he subsequently shifts this burden to the consumer by including the tax in the price of the bike. Roughly, we may say that the direct taxes are paid by the rich and the indirect taxes are paid by the poor.
The financial system of India is federal in character. Therefore, the powers and functions to raise revenue are divided between central government and state and local governments as scheduled in the Indian Constitution. This division has been made to avoid any clash in financial, administrative and other areas.
The main sources of tax and non-tax revenue of the central government are 1. Taxes on income (other than on agricultural income), 2. Corporate tax, 3. Expenditure tax, 4. Taxes on properties (Estate duties and Death duties), 5. Gift tax, 6. Wealth tax, 7. Taxation on capital gains, 8. Union excise duties, and 9.Customs duties (Import and Export duties).
The sources of non-tax revenue of the central government include1. Fiscal services, 2. Receipts from interest on loans, 3. Dividend and profits, 4. General and administrative services, 5. Social and community services and 6. Economic services.
Under the Constitution of India, only the State governments are provided with separate powers to raise revenue, while the Union territories are financed by the Central government directly. The main sources of tax and non-tax revenue are 1. Land revenue, 2. Taxes on the sale and purchase of goods except newspaper, 3. Taxes on agricultural income, 4. Taxes on land and building, 5. Succession and estate duties in respect of agricultural land, 6. Excise duty on alcoholic liquors and narcotics, 7. Taxes on the entry of goods into a local area, 8. Taxes on mineral rights, 9. Taxes on the consumption of electricity 10. Taxes on vehicles, animals and boats, 11. Taxes on goods and passengers carried by road and inland water ways, 12. Stamp duties, court fees and registration, 13. Entertainment tax, 4. Taxes on advertisements other than those in newspaper, 15. Taxes on trade, profession and employment, 16. Income from irrigation and forests, 17. Grants from the central government and 18. Other incomes such as income from registration and share in the income-tax, excise and estate duties and debt services, loans and overdrafts.
Direct taxes can also be classified on the basis of the degree of progressiveness or distribution of their burden on the tax payers. Ability of the people to pay a tax is measured on the basis of property, income, size of the family and consumption etc. The ability to pay in practice implies tax base and tax rate. Tax base denotes the income, property and expenditure on the basis of which ability to pay the tax is measured. Rate structure indicates equalisation of burden of taxation. Tax rate is the percentage of tax levied per unit of tax base. The total amount of tax is equal to the tax base multiplied by tax rate.
In the case of a proportional tax, tax rate remains constant regardless of whether the tax base is large or small. It means uniform tax rate is imposed on the rich as well as the poor. The tax paid by the people is fixed in proportion to their income and wealth and other tax bases.
In the case a progressive tax, the tax rate increases as the tax base increases. With the increase in income, a taxpayer has to pay a higher tax. For example, in the case of income tax, exemption limit and tax slabs are characterised by the income tax structure formulated by the government of India. As each income slab increases, there is an increase in the rates of tax.
When the tax liability on income falls with the increase in the tax payer's income, it is termed as a regressive tax. Here, the tax rate decreases as the tax base increases. Under this tax system, the poorer sections of the society are taxed at higher rates than the richer sections and hence this tax is not just or equitable.
Digressive tax is a blend of progressive tax and proportional tax. The rate of taxation increases upto a point. After that limit, a uniform rate is charged. Here the rate of tax does not increase in the same proportion as the increase in income. Under this tax system, the higher income groups make less sacrifice than the lower income groups.
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