Ramesh Singh Test: Tax Structure In India

• The idea here is less tax on the people who earn less and higher tax on the people who earn more classifying income earners into different slabs.

• This method is believed to discourage more earnings by the individual to support low growth and development unintentionally.

• Being poor is rewarded while richness is punished.

• Taxpayers also start evading tax by showing lower unreal income.

• Proportional Taxation: Generally, this mode is used as a complementary method with either progressive or regressive taxation.

• If not converted into proportional taxes, every progressive tax will go on increasing and similarly every regressive tax will decrease to zero, becoming ultimately futile tax methods.

• That is why every tax, be it progressive or regressive, must be converted into proportional taxes after a certain level.

• Individuals in identical or similar situations paying identical or similar taxes are known as horizontal equity'.

• When 'better-off' people pay more taxes, it is known as vertical equity.

• Commodities Transaction Tax (CTT) is a tax similar to Securities Transaction Tax (STT), proposed to be levied in India, on transactions done on the domestic commodity derivatives exchanges.

• Globally, commodity derivatives are also considered as financial contracts. Hence CTT can also be considered as a type of financial transaction tax'.

The tax is classified into two-

(i) Short Term Capital Gain (STCG): It applies 'if the Asset has been sold within 36 months of owning it'.

(ii) Long Term Capital Gain (LTCG): It applies 'if the asset has been sold after 36 months of owning it'.

• There has been a divergence between the official tax rate and effective tax rate in India-defined as the ratio of the total tax collected to the aggregate tax base.

• The divergence occurs mainly on account of tax exemptions. A tax expenditure is also known as revenue foregone.

• But such forgone taxes does not necessarily mean that the Government has waived them off.

• The collection rate is the ratio of total customs revenue and the total value of imports for a year. This is an indicator of overall incidence of customs including countervailing duties.(CVD) and special additional duties (SAD) on imports.

• The Gol offers several exemptions in customs duty on a variety of imports. This is the reason why India's customs collection does not increase as much as its imports increase.