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Types of Indirect Tax
Types of Indirect Tax
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The idea of taxes has existed since ancient times. In the past, the highest levels of the social and political system demanded a share of the crops or liquid money from the general populace. Even now, governments levy taxes to raise money for their budgets. In contrast to direct tax, the term "indirect tax" is used. In contrast to direct tax, the government does not impose it on an individual's income or an organization's revenue or profit. It is a tax that a customer pays to an intermediary like a retailer. It spreads from one individual to another. Service tax, sales tax, central sales tax, state excise duty, countervailing duty, octroi and entry tax, and purchase tax are all examples of indirect taxes.
What exactly is an indirect tax?
It is a tax that the Indian government charges the end user on goods or services. This tax is typically included in the market price of the goods or services. In India, there are no clear laws that define indirect taxes. On the other hand, our government issues announcements and circulars to levy indirect taxes on both tangible and intangible goods.
The following are some advantages of this tax:
1. It is simpler to collect than direct tax because of this. This tax is added to the market price of a product and collected only upon purchase by retailers or service providers. As a result, the first taxpayer—a retailer or service provider—need not worry about getting their customers to pay it back.
2. Convenient and Time-Saving: The ability to transfer indirect tax from one person to another is one of its benefits. Retailers or service providers can collect it at their stores because the taxpayer is the final consumer. This makes it easier and quicker to collect this tax.
3. Reduced Taxpayer Stress: The taxpayers are not required to deduct this tax from their pay. It is implemented by our government and collected at the point of sale using a product's market value. As a result, taxpayers do not perceive it as an additional expense.
4. Fair Distribution of Taxes: The necessity of any commodity is inversely related to this tax. As a result, items that meet our essentials and fundamental requirements pay less tax. On the other hand, more expensive and luxuries will result in higher taxes.
5. It is impossible to avoid indirect tax because it is included in the price of goods and services. As a result, every time you purchase something, you automatically pay this tax.
6. Equal Collection from All: No income tax bracket applies to incomes less than 2.5 lakh annually. Direct tax is not required for people with this kind of income. However, they contribute to our nation's growth and pay our government indirect taxes.
Disadvantages of Indirect Taxes
1. In addition to its positive aspects, this tax has a few disadvantages. Here are a few: Regressive Nature: Even after the Goods and Services Tax was implemented, this tax continues to be regressive to some extent. The tax on a product or service is the same for everyone, rich or poor. A poor person's net operating income is impacted as a result of this increase in commodity prices.
1. In addition to its positive aspects, this tax has a few disadvantages. Here are a few: Regressive Nature: Even after the Goods and Services Tax was implemented, this tax continues to be regressive to some extent. The tax on a product or service is the same for everyone, rich or poor. A poor person's net operating income is impacted as a result of this increase in commodity prices.
2. Nature of Cumulative Effects: This tax can sometimes accumulate effects. From the raw materials to the finished product, intermediaries typically charge a high tax rate at each stage of the transaction. A good becomes more expensive as a result.
3. Unfavorable to Industries: One of the drawbacks of indirect taxation is that it does not favor emerging industries. As previously mentioned, the intermediaries charge a high price for the raw material. Cost of production rises as a result, which discourages industries from expanding.