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The article briefly explains the Indirect tax in India, its progress pre and post reforms and the indirect tax in budget 2008.

Indirect tax

Charge levied by the State on consumption, expenditure, privilege, or right but not on income or property. Customs duties levied on imports, excise duties on production, sales tax or value added tax (VAT) at some stage in production-distribution process, are examples of indirect taxes because they are not levied directly on the income of the consumer or earner. Since they are less obvious than income tax (because they don't show up on the wage slip) politicians are tempted to increase them to generate more state revenue. Also called consumption taxes, they are regressive measures because they are not based on the ability to pay principle.

Indirect Tax System India

Indirect Taxes Pre Reforms
The indirect tax structure was extremely irrational between the reforms. The Constitution gives the permission to levy a multitude of indirect taxes. But the most important ones are customs and excise duties charged by the Central government and sales tax excepting inter state sales tax to be charged by the state government. The indirect taxes levied by the centre like customs, excise and central sales tax and the major indirect taxes levied by the states and civic bodies like passenger and goods tax, electricity duty and octroi when taken together did not present a rational system.

Indirect Taxes Post Reforms
  • Even post reforms, the indirect tax regime in India is still in the early stages of growth. Both the Central and State governments charge a multitude of indirect taxes. The central government charges tax on goods at the point of import (Customs duty), manufacture (Excise duty), inter state sales (Central sales tax or CST) and on provision of services (Service tax).
  • The state governments charge tax on goods sold within the state (Sales tax/Value Added Tax or VAT), and on the goods that enter the state (Entry tax).
  • In the present scenario corporate would have to analyze the tax cost involved in a transaction, have enough backup documentation to support their tax positions and keep looking for ways for tax maximization.
India Budget 2008

Indirect Taxes
As per the Ministry Of Finance there has been significant development in planning for introducing the goods and services tax (GST) from April 1 2010.As a first step the rate of central sales tax (CST) is under proposal to be decreased to 2 per cent from April1 2008.The general rate of central value added tax (CENVAT) has been decreased from 16 per cent to 14 per cent across all goods.

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