Today all were glued to their tv to watch the Indian Finance Minister present the Union Budget. It was rather a long speech. You should have patience to sit through the entire budget speech.
What is a BUDGET?
In layman' s language, budget is a statement of your income and expenditure. Also the details of them. Your budget is for your family. But the Finance Minister budgets for the entire country.
Normally we are all interested to know how the budget is going to affect our lives. In every budget, one expects change in taxation rates. If TAX RATE goes up,it affects you adversely. You end up paying more. When the TAX RATE is reduced,you feel happy. Why? You pay less tax.
In this post let us discuss words relating to taxation. Generally TAX is levied by the government. Remember, only government can impose a tax on the citizen of a country. The power to levy tax vests with the government. This power is called a SOVEREIGN POWER. Note that when the municipal corporation levies tax on you,it is supposed to be part of government. Power to levy tax is conferred on a body by law.
No tax can be collected without an authority of law.
What are the various types of taxes?
Taxes can broadly be categorized in two ways.
1.DIRECT TAX
2. INDIRECT TAX
INCOME TAX AND CORPORATE TAX are examples of direct taxes.
When the INCIDENCE and IMPACT of a tax are on the same person, the tax is said to be a DIRECT TAX.
CUSTOMS AND EXCISE DUTIES are examples of INDIRECT TAXES.When the incidence and impact of a tax are on different persons, the tax is called an INDIRECT TAX.
Now I have to explain the terms INCIDENCE AND IMPACT.
INCIDENCE refers to a person who by law is responsible to pay the relevant tax. A tax on the income of a person is to be paid by the person who earns the income. So the tax is incident on you when you earn money.
IMPACT refers to a person who feels or experiences the burden of the tax. In the case of income tax, you can easily see that the impact is on the person earning the income.
Therefore income TAX is a DIRECT TAX.
As regards excise duty,the liability in India is on the manufacturer of goods. While removing the manufactured good from his factory, the manufacturer is responsible to pay the tax to the government.
So the Incidence of the tax is on the manufacturer of goods.
Though the manufacturer pays the tax at the time of clearance of the goods from the factory,he later collects the tax paid from the persons to whom he sells the goods. Therefore,the impact is on the consumer.
Since the Incidence and impact are on different persons for excise duty,it is an INDIRECT TAX.
DUTY is another word for tax. But this term is generally used for customs and excise.
CUSTOMS DUTY Is levied on the goods imported and exported at the time of entry into a country or of taking out from the country.Or
Tax is collected at a particular stage. That stage is called a TAXABLE EVENT.
In the case of manufactured goods,the taxable event is the time of clearance from the factory in INDIA.
A tax on the income of a company is called CORPORATE TAX.
The legal term to refer to a person' s responsibility is known as LIABILITY.
Generally a government gets its money by taxing people. It is an income for the government. Another word for the income of a country is REVENUE.
That is all for today. We will learn more words relating to taxation in the next post.
Happy learning
SAYEE Jayaraman
28/02/2015
