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Indirect Tax Structure
Indirect Tax Structure
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The Indirect Tax regime in India is quite old and dates back to the pre-independence era as the erstwhile Madras state levied a Sales and Entertainment Tax in 1939. Thereafter, instances are also found in 1950 from Hyderabad where a General Sales Tax was imposed and the same was introduced in the entire Andhra Pradesh in 1957. Initially, an indirect tax was imposed on all types of goods including livestock but with time, it was modified and the tax was imposed only on suppliers and manufacturers and then further passed to the final consumer. Thus, this type of tax is to be paid upon consumption of goods or services.
The Indirect Tax strcuture of countries is such that everyone is encompassed within it and no one can say that a person does not pay a tax of any type. During the pre-GST (Goods and Services Tax) era, there were multiple taxes like Sales Tax, Service Tax, etc. as indirect taxes were levied on an ad valorem basis which created a cascading tax effect. With the introduction of GST, a single tax was levied on goods or services purchased anywhere within the country. Therefore, now manufacturers only have to pay central GST, state GST (which can include taxes at the state level) and Integrated GST. Taxes on an inter-state transaction can be claimed by a consuming state.
Due to its inherent features, it encompasses each and everyone within the economy and it can also be said with certainty that the indirect tax payers in India are steadily increasing with each passing day. Further, the GST has been a game changer in the sense that unique indirect taxpayers within the country have increased significantly compared to the pre-GST period.
However, it must also be mentioned here that there have been many indirect tax reforms within the country. They include the introduction of Modified Value Added Tax (MODVAT), Central Value Added Tax (CENVAT) and VAT in 1986, the reduction of Custom Duties in 1990, Service Tax in 1994-95 and finally Goods and Services Tax in 2017. The need for reforming the indirect tax structure was primarily felt to meet the requirements of the market economy. The reforms were also needed to ensure that the country delivers international competitiveness. Thus, these two major factors have worked towards reforming the indirect tax system of the country.