Taxation / Taxation / Direct and Indirect Tax Ratio..
Direct and indirect taxes constitute the two main categories of taxes in India, each with its distinctive characteristics and impact on taxpayers. Here's a brief overview:
- Direct Taxes:
- Examples: Income Tax, Corporate Tax, Minimum Alternative Tax (MAT), Fringe Benefit Tax (FBT), Dividend Distribution Tax (DDT), Securities Transaction Tax (STT), Capital Gains Tax, Angel Tax, Cash Withdrawal Tax, Property Tax, etc.
- Direct taxes are levied directly on individuals or entities, and the liability cannot be passed on to others.
- It is a progressive tax, meaning the tax rate increases as the taxable amount increases. The goal is to ensure that the wealthier individuals or entities contribute proportionally more to government revenue.
- Indirect Taxes:
- Examples: Goods and Services Tax (GST), Central Excise Duty, Customs Duty, Value Added Tax (VAT) of States, Entertainment Tax, Stamp Duty, etc.
- Indirect taxes are imposed on goods and services, and the burden can be shifted to the end consumer. It includes taxes on production, manufacturing, and consumption.
- While there may be progressive elements (exemptions, different tax slabs, luxury goods taxed at a higher rate) in indirect taxes, they, in general, do not differentiate between the rich and the poor. Essential goods often attract taxes, affecting lower-income groups.
- Indirect taxes can contribute to inflation and may impact savings and demand.
Historical Perspective:
- In 1985-1986, the share of indirect taxes in total tax revenue was significantly higher than that of direct taxes, with indirect taxes contributing 83%.
- Over the years, the share of direct taxes has increased, and by 2018-2019, direct taxes fetched more revenue than indirect taxes.
- In the Budget for 2020-21, the Gross Tax Revenue (GTR) was estimated to be around ₹24.23 lakh crore, with direct taxes constituting approximately 55% of GTR.
Current Scenario:
- Despite the shift, when considering the combined tax collections of both the central and state governments, indirect taxes still contribute significantly, indicating a regressive nature in the overall tax structure.
It's essential to note that the balance between direct and indirect taxes reflects the government's approach to taxation, striving for fairness, equity, and revenue generation to meet public expenditure and development goals.
