Problems In Present Indirect Tax Structure: Taxes Central Excise, Service Tax, VAT etc., is levied by the Central and State Governments are multistage value added taxes. Before introduction of VAT in Sales Tax and CENVAT in Central Excise and Service Tax, the tax system is very complex and has cascading effect. The product or services are taxed on various stages or destinations. The tax levied at one destination is also be taxed on another destination. In recent past there is much significant progress in the taxation scenario, which not only improved the tax structure by using new and improved technologies.
Many changes held on taxation front such as single point sale has been replaced by Value Added Tax, service tax has been introduced by the Central Government. In Central Excise government has introduced CEVAT by allowing set off taxes paid on inputs, while producing output products. The introduction of VAT System in India is a progressive step towards implementation of Goods and Services Tax in India. There are some deficiencies in the Current System of Taxation. now check more details for “Problems In Present Indirect Tax Structure” from below…
- The CENVAT (Excise Duty) is levied on the products manufacturer or produced in India. But there are various definitions related to manufacture and various ruling given by the courts. There are also various disputes regarding valuation of products. The issue related to the applicability of CENVAT (Excise Duty) only at manufacturing level, which is an impediment to an efficient and neutral flow o tax credit. Various countries have replaced VAT system by implementing GST.
- The Constitution of India has bifurcated the power of taxation between Central Government and the State Government. The State Government has power to levied taxes on all matters or items falling under State List. Now in case of Service Tax the Central Government has power to levy tax on Services but in case of Work Contracts the State Government also has power to levy tax. This type of system creates difficulties and disputes in revenue generation and distribution.
- The distinctions between goods and services are getting closer due to improvement in technology and innovation. The copyrights, patents, software etc., are not considered as goods and falling under domain of State Government. So the goods are getting colours of services and their classification becomes more complicated by the tax authorities. Let us consider an example in case of Leasing of Equipments, without transfer of machinery and control to the lessee, would this be taxable as Service or Sale. There are various cases, where disputes raised in present taxation scenario.
- The Service Sector is growing rapidly and Central has exclusive power to levy tax on services. The State Government is losing its revenue by not levying tax of services under the State.
- There is some shortcoming in CENVAT system of Government of India is because of non-inclusion of several central taxes in the overall framework of CENVAT. Many taxes such as Additional Customs Duty, Surcharge etc., are not included in CENVAT System. There are various services such as Oil, Gas Production, Mining, Agriculture, Wholesale and Retail Trade, Real Estate Construction has been kept out of range of CENVAT Credit. These taxes are included in the output services and products are producing cascading effects. In VAT system also various taxes such as Entry tax, Octroi, Luxury Tax, Entertainment tax are kept outside of VAT Scheme.
- In case of CST on Inter State Sales, no set off is allowed, which also increase cascading effect.
- The Central and State Government are using new and modern technologies to administer the taxes, but more improvement required. The present system, the dispute resolution system is complex and more time and money consuming. These difficulties should be addressed.
- There are various tax forms and returns are required to be filed related to various duties under various taxation laws and rules. These returns are complex and lengthy, and these should be simplified.
- There is lack of cross verification of returns filed under various State as well as Central Taxation Rules and there are different in detailed filed by the assessed by paying Central and State taxes simultaneously.
- At present there are more than fifteen taxes under Indirect Tax System. All these taxes are of different rates and required to be filed through different forms and returns.
- The State Government are levying Entry Tax and Octroi and compliance to it are time consuming. The transporters are required to wait more than four hours on border of a state, while entering in other state.
- The tax structure in India is complex and burden sum. There are various definitions of the same transaction in different States as well as Central Laws. These should be addressed.
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