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freelance visiting faculty payment, but what if he was in 0% or 5% Income Tax slab?
Then, Income Tax Department will refund his money with interest.
- Similarly, GST refund can be claimed by an entrepreneur from GSTN webportal.
21.10 MISC. DIRECT TAXES - FINANCIAL TRANSACTION TAXES ( व ीय लेनदेन कर)
21.10.1 (Concept) Tobin Tax / Robinhood Tax
- 1970s: Nobel recipient American economist James Tobin proposed a small tax
everytime currency is converted into another currency (e.g. $ to ₹).
- Such tax will discourage short term speculative investment and flight of capital from
one country to another = stabilizing the global economy and currency exchange rates.
- In India, foreign currency conversions are subjected to (previously Service Tax) & now
GST. More in pillar#3
21.10.2 STT & CTT ( तभू त लेनदे न कर और व तु लेनदे न कर)
- Securities Transaction Tax (STT: भू लेनदे न कर) is levied on the sale and purchase
of shares, ETF-units, derivatives and other securities at stock-exchanges. It's rate
(0.001%-2%) varies as per the nature of the securities. Full-Budget-2019 relaxed certain
STT norms on Option contracts. How? NOTIMP
- Commodities Transaction Tax (CTT: व ु लेनदे न कर) is levied on non-agricultural
commodities traded at Commodities-Exchanges. Rate ~0.01%.
22 BUDGET→ REVENUE PART→ RECEIPTS→ TAX → INDIRECT TAXES
बजट→ राज व भाग→ ा यां→ कर→ अ य कर
- Tax _ _ _ _ _ (करापात)= @Person from whom govt collects the tax. (e.g. shopkeeper)
- Tax _ _ _ _ _ (कराघात/कर का भाव) = @Person who finally bears the tax & can’t pass on
further. (e.g. Consumer)
- In the indirect taxes, tax incidence and tax impact does not fall on the same person. E.g.
Customs Duty on import and export, Excise duty on manufacturing of goods, Service tax
on services, Sales Tax, Value Added Tax (VAT), and Goods and Services tax (GST).
- Indirect taxes fall under the Ambit of FinMin→ Department of Revenue (राज व वभाग)→
Central Board of Excise and Customs (CBEC): (क य उ पाद एवं सी ा शु क बो ) →Budget-
2018 it was renamed as Central Board of Indirect Taxes and Customs (CBIC): (क य
अ य कर और सी ा शु क बो )
22.1 INDIRECT TAXES: TYPES (अ य कर के कार)
Ad- Valorem tax (यथामू य कर) Specific Tax per unit ( व श ट कर त यू नट)
Taxes based on the value of something. Tax based on quantity of items. E.g. ₹ 260 Excise
E.g. 35% Customs Duty on import of duty on production of every 1000 cigarettes of 65-
Mrunal’s Economy Pillar#2A: Budget → Revenue Part → Tax-Receipts → Page 123
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Ad- Valorem tax (यथामू य कर) Specific Tax per unit ( व श ट कर त यू नट)
orange juice. So, if juice priced at ₹100 70mm length. Here we’re taxing them irrespective
imported, then ₹35 as tax. of their manufacturing or selling price.
Easier to administer. Difficult to administer, leads to inspector-raj &
litigation. But, if slight increase in this tax, then
greater burden passed on to the consumer so it
helps reducing harmful consumption. (How
exactly? Ans. microeconomics graph is not imp)
22.2 INDIRECT TAXES: MERITS AND DEMERITS (लाभ व ् नक
ु सान )
Merits Demerits
➔ Convenient to collect because the traders ➔ _______( गा ी) in nature, Both
act as honorary (=unpaid) tax collectors. poor and rich taxed equally for the same
Wider base because everyone covered item then poor people end up paying
e.g. 18% GST on Biscuit. more portion of their income in indirect
➔ Elastic (लिीला): small increase brings taxes.
large revenue, because everyone is ➔ This tax is hidden in the price. Customers
affected. do not always feel the pinch of paying
➔ Can reduce harmful consumption by indirect tax so it promotes less civic
imposing higher taxes on cigar, alcohol, consciousness than direct taxes.
soft drinks & fast food. ➔ Indirect taxes hike → product becomes
expensive → demand falls. Therefore, a
level of uncertainty involved in how much
₹ ₹ will Government actually earn?
➔ High level of corruption, evasion,
cascading effect if input credit is not
given e.g. erstwhile sales tax system.
22.3 (CONCEPT) _ _ _ _ _ _ _ _ _ TAX ( पगो वयन कर)
- An externality (बा य ा) is a positive or negative consequence of an economic activity
experienced by unrelated third parties. E.g. Cement company (related parties: labourers
& consumers benefit); whereas unrelated third parties (local community, flora and fauna)
are harmed by cement company’s air-pollution.
- English economist Arthur C. Pigou proposed taxing the companies that create such
negative externalities: e.g. polluting industries, cigarettes (passive smoking), alcohol
(social disharmony).
- We HAVE high level of indirect taxes on petroleum, tobacco and alcoholic products.
- We HAD “Clean environment cess” on Rs 400 per tonne of coal (but abolished in GST-
regime)
Mrunal’s Economy Pillar#2A: Budget → Revenue Part → Tax-Receipts → Page 124
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22.4 _ _ _ _ _ _ _ _ EFFECT OF INDIRECT TAXES
If a government levies 10% indirect tax every time an item is sold, then buyer will have to to
pay tax on tax. This ‘cascading effect’ of indirect taxes (अ य कर का सोपानी भा ) raises
the price of final product. Observe:
Suppose, Price 10% Tax on price Total
Retailer bought from ₹100 ₹10 ₹110
wholesaler
Retailer sold to customer ₹120 ₹12 ₹132
with ₹10 profit
Breakdown the ₹132 paid by the final customer: 132=100+10+10+11+1
- 132= 100 (price of original product)+10 (tax paid by retailer to wholesaler)+10 (as
retailer’s profit margin)+11 (tax paid by customer to buy from retailer) + 1**.
- 1** this one rupee is 10% of 10(tax paid by retailer to wholesaler). So, it’s “TAX on TAX
paid at previous stage” / cascading effect of tax on the end-customer.
- Then, both buyer and seller will prefer to do transaction without bills, to entirely avoid tax
liability and its cascading effect → Govt.’s revenue collection ↓, Fiscal deficit ↑, black
money ↑
- This problem can be solved, if govt gives some type of cashback, reward points or input
tax credit (ITC: इनपट
ु कर यय) to the sellers, on the indirect taxes they’ve already paid
in previous stage.
- To claim such input tax credit, the sellers will have to show the bills/ invoices for each
stage = self-policing = black money ↓.
22.5 INDIRECT TAXES: A TIMELINE OF REFORMS
Time Who? Reform in Indirect taxation
1944 Union Central Excise Act (क य उ पाद शु क अ नय ) to levy Excise duty on
goods produced or manufactured in India. Abolished on most items after
GST.
1956 Union Central Sales Tax Act (क य ब कर अ नय ) to levy tax on inter-state
commerce. In practice, CST was given to the source/exporting state from
where goods went to the destination/importing state. Abolished after GST.
1962 Union Customs Act (सी ा शु क अ नय ) to levy Customs Duty on import and
exports
- Budget 2018: Raised customs duty on a range of imported products—
from fruit juice, perfumes, TVs, mobile phones etc. to encourage Make
in India programme. It also introduced 10% Social Welfare Surcharge on
imported goods.
- Interim-Budget-2019: revised scheme for duty-free import of capital
goods & machinery. Digitalization of export/import transactions for ease
of doing biz.
Mrunal’s Economy Pillar#2A: Budget → Revenue Part → Tax-Receipts → Page 125
