A compulsory transfer of money ( or occasionally of goods and services) from private individuals, institutions or groups to the government is called taxation. It may be levied upon wealth, income, capital gains or in the form of a surcharge on prices or the quantity of a good sold. In the first case, it would then be called a direct tax, in the latter, an indirect tax. Taxation is one of the principal means by which a government finances its expenditure.
1. Adequacy and productivity- Contrary to the earlier phase, the tax system have exhibited a good deal of buoyancy in recent years. The tax revenue has been continuously increasing along with an increase in the national income. However, the increase in tax revenue has not been adequate to meet the growing requirements of the developing economy.
2. Efficiency- Indian tax system falls short of the criterion of efficiency. On account of complicated laws and rapid changes in their provisions, the tax system has lost the qualities of simplicity and certainty. As a result, this has led to massive tax evasion and black money which have introduced serious distortion in the economic and socio- political set-up.
3. Equality- Our tax system also falls short of the criterion of equity. Although our direct taxes are highly progressive, undue reliance on indirect taxes has more than counterbalanced that effect. Leaving agricultural income out of the tax net has been a source of additional inequity.
4. The share of taxes in the country’s income has been falling over the past decade primarily due to slower growth rate of excise and customs collections
5. The share of the Centre’s gross tax revenue as a percentage of GDP has been on the decline over the last decade or so.
6. The tax revenue of states regarding percentage of national income have somewhat increased over the period.
7. Tax revenues – regarding percentage of GDP – are declining, to the central government exchequer. This occurs mainly on account of a slowdown in the growth rate of excise and customs collection.
8. The proportion of excise duty collections is down from more than 40% during the early 1990s to about 36% at present.
9. While customs duties are down by as much as ten percentage points, from about 30% or so to less than 20%. These are estimates reckoned as percent shares of Central taxes.
10. Corporate Tax shares stand at 25%, while Income tax accounts for 15%.
11. Analyzing the tax revenue receipts of state governments, we find that indirect taxes ( taxes on goods and services- sales taxes, excise duties, etc.) are the largest contributors to the states own tax revenue collection.
12. Currently, indirect taxes are accounting for 63% of the states own tax revenue.
13. Taxes on vehicles constituted Rs. 8456 crores in 2002-03 and Rs. 9475 crores in the very next year. This figure is expected to rise further as the number of vehicles on the road goes up.
14.With changing life-style and emergence of BPO firms, entertainment tax is expected to be a big source of revenue in some states in the coming years. This tax contributed Rs.864 crore in the year 2002-03 and Rs. 967 crore in recent years to governments’ exchequer.