Top 4 Principles or Canons of a

Good Tax System

Article shared by

Some of the most important principles or canons of a good tax system are
as follows: 1. Principle or Canon of Equality 2. Canon of Certainty 3. Canon
of Convenience 4. Canon of Economy.
A good tax system must fulfill certain principles if it is to raise adequate
revenue and fulfill certain social objectives. Adam Smith had explained four
canons of taxation which he thought a good tax must fulfill.
These four canons are of:
(1) Equality,
ADVERTISEMENTS:

(2) Certainty,
(3) Convenience, and
(4) Economy.
These are still regarded as characteristics of a good tax system. However,
there have been significant developments in economic theory and policy
since Adam Smith wrote his book The Wealth of Nations . Activities and
functions of Government have enormously increased.
ADVERTISEMENTS:

Now, the Governments are expected to maintain economic stability at full

employment level, they are to reduce inequalities in the income distribution,
and they are also to perform the functions of a Welfare State.
Above all, they are to promote economic growth and development,
especially in the developing countries, net only through encouraging private
enterprise but to undertake the task of production in some strategic
industries. Thus, in order to devise a good tax system, these objectives and
functions of Governments economic policy must be kept in view.
It may be noted that Adam Smith was basically concerned with how the
wealth of nations or, in other words, production capacity of the economy
can be increased and he thought that private enterprise working on the
basis of free market mechanism would ensure efficient use of resources
and, if left unfettered would bring about rapid economic growth.
His ideas about public finance were influenced by his economic philosophy
of virtues of free private enterprise. In proposing the above mentioned
canons of taxation, he was guided only by the sole objective that
Government should be able to raise sufficient revenue to discharge its
limited functions of providing for defence, maintaining law and order, and,
public utility services.
ADVERTISEMENTS:

Both the objectives and functions of modern Governments have increased

necessitating large resources. Therefore, the modern economists have
added other principles or characteristics which taxation system of a country

must satisfy if the objectives of modern Governments are to be achieved. In

what follows we shall spell out in detail the principles and characteristics of
a good tax system starting with the explanation of Smithian canons of
taxation.

1. Principle or Canon of Equality:

The first canon or principle of a good tax system emphasised by Adam
Smith is of equality. According to the canon of equality, every person should
pay to the Government according to his ability to pay, that is in proportion of
the income or revenue he et jove onder the protection of the State.
Thus under the tax system based on equality principle the richer persons in
the society will pay more than the poor. On the basis of this canon of
equality or ability to pay Adam Smith argued that taxes should be
proportional to income, that is, everybody should pay the same rate or
percentage of his income as tax.
However, modem economists interpret equality or ability to pay differently
from Adam Smith. Based on the assumption of diminishing marginal utility
of money income, they argue that ability to pay principle calls for
progressive income tax, that is, the rate of tax increases as income rises.
Now, in most of the countries, progressive system of income and other
direct taxes have been adopted to ensure equality in the tax system.
ADVERTISEMENTS:

It may, however, be mentioned here that there are two aspects of ability to
pay principle. First is the concept of horizontal equity. According to the
concept of horizontal equity, those who are equal, that is, similarly situated
persons ought to be treated equally.

This implies that those who have same income should pay the same
amount of tax and there should be no discrimination between them.
Second is the concept of vertical equity. The concept of vertical equity is
concerned with how people with different abilities to pay should be treated
for the purposes of division of tax burden. In other words, what various tax
rates should be levied on people with different levels of income, A good tax
system must be such as will ensure the horizontal as well as vertical equity.

2. Canon of Certainty:
Another important principle of a good tax system on which Adam Smith laid
a good deal of stress is the canon of certainty. To quote Adam Smith, The
tax which each individual is bound to pay ought to be certain and not
arbitrary.
The time of payment, the manner of payment, the quantity to be paid ought
all to be clear and plain to the contributor and to every other person. A
successful function of an economy requires that the people, especially
business class, must be certain about the sum of tax that they have to pay
on their income from work or investment.
The tax system should be such that sum of tax should not be arbitrarily
fixed by the income tax authorities. While taking a decision about the
amount of work effort that a person should put in or how much investment
should he undertake under risky circumstances, he must know with
certainty the definite amount of the tax payable by him on his income. If the
sum of tax payable by him is subject to much discretion and arbitrariness of
the tax assessment authority, this will weaken his incentive to work and
invest more.

Moreover, lack of certainty in the tax system, as pointed out by Smith,

encourages corruption in the tax administration. Therefore in a good tax
system, individuals should be secure against unpredictable taxes levied on
their wages or other incomes. The law should be clear and specific; tax
collectors should have little discretion about how much to assess tax
payers, for this is a very great power and subject to abuse.
In the opinion of the present author the Indian tax system violates this
canon of certainty as under the Indian income tax law a lot of discretionary
powers have been given to the income tax officers, which have been
abused with impunity. As a result, there is a lot of harassment of the tax
payers and corruption is rampant in the income tax department.

3. Canon of Convenience:
According to the third canon of Adam Smith, the sum, time and/manner of
payment of a tax should not only be certain but the time and manner of its
payment should also be convenient to the contributor. If land revenue is
collected at the time of harvest, it will be convenient since at this time
farmers reap their crop and obtain income.
In recent years efforts have made to make the Indian income tax
convenient to the tax payers by providing for its payments in installments
as advance payments at various times during the year. Further, income tax
in India is levied on the basis of income received rather than income
accrued during a year. This also makes the income tax system convenient.
However, there is a lot of harassment of the tax payers as they are asked
to come to the income tax office several times during a year for
clarifications of their income tax returns.

4. Canon of Economy:
The Government has to spend money on collecting taxes levied by it- Since
collection costs of taxes add nothing to the national product, they should be
minimized as far as possible. If the collection costs of a tax are more than
the total revenue yielded by it, it is not worthwhile to levy it.
More complicated a tax system, more elaborate administrative machinery
will be employed to collect it and consequently collection costs will be
relatively larger. Therefore, even for achieving economy in the tax
collection, the taxes should be as simple as possible and tax laws should
not be subject to different interpretations.

LITERATURE REVIEW ON INDIAN TAX

SYSTEM
Posted by Pooja Khatri,10/02/16FinanceNo Comments0Views : 1491Print

BY POOJA KHATRI:
INTRODUCTION:
Tax is the major source of revenue to government in India. Taxes are levied as per the laws
prescribed in constitution of India. It is collected by central and state government and also by
local bodies. There are two types of taxes in India. The first is direct tax which includes
income tax, corporate tax etc. The other is indirect tax which includes service tax, VAT etc.
REVIEW OF LITERATURE:
1.

Indian tax system is guided by a complex set of laws and policies.Widespread evasion
of tax is a matter of concern (Eigner, Richard M, 1959).

2.

Tax compliance can be improved by implementing simple reforms in personnel policy

in Indian income tax administration. Taxpayers voluntarily disclosing higher income are
currently assigned to special assessment units. Therefore, taxpayers understate their income.
Empirical evidence consistent with this hypothesis is found. If staff employment is increased
and there are changes in assignment procedures for staff and taxpayers, it will lead to higher
tax compliance and lower tax evasion by Indians. (Das-Gupta, Arindam; Ghosh, Shanto;
Mookherjee, Dilip, 2004)

3.

In India, some tax structure changes were implemented to reduce tax evasion. It
included changes in tax rate structure and deductions. There were initial gains which could
not be sustained over time. The magnitude f the gains from the reform were limited and failed
to significantly curtail losses from tax evasion. (Das-Gupta, Arindam; Gang, Ira N ,2000).

4.

A series of steps were taken by the Customs and excise Department, Government of
India, to reduce corruption and prevent leakages of revenue incustoms and excise tax
collection and administration. A proper framework was followed. Liberalization and
simplification of laws and procedures was implemented. It was coupled with proper control
mechanisms such as professionalized audits work better. It reduced corruption and enhanced
revenue collection. (Jayaraman Vijayakumar; Rasheed, Abdul A; Krishnan, V S ,2005).

5.

Value added tax (VAT) is a type of indirect tax that is imposed on goods and services.
Sometimes, when the government operates on a budget surplus or wants to increase its
revenue in order to finance its budget deficit. A question that arises is whether value added
tax has been a boon or misery for a developing country like India. In one of the most large
scale reforms of the countrys public finances in over the past 50 years, India has finally
agreed the launch of its much delayed value added tax from 1st April, 2005 at a rate of
12.5%. The tax rate is fixed by meeting of different state level Finance Minister, in New
Delhi, designed to make accounting more transparent, to cut short trade barriers and
boost tax revenues. (Tripathi, Ravindra; Sinha, Ambalika; Agarwal, Sweta ,2011).

6.

The Report of the India,Taxation Enquiry Commission, 1953-54 is an important

contribution to official literature on taxation. Appointed in April 1953, the Commission was
charged with making a thorough examination of central, state, and local taxation in order to
determine the incidence. (Goode, Richard ,1956).

7.

These fiscal and tax reforms are made which are of interest to non-resident
individuals and foreign companies, including their subsidiaries and associates. The
Government has recently undertaken a series of measures to promote foreign investments,
including corporate incometax exemption or rate reductions, tax holidays, accelerated
depreciation and investment allowances, expansion and reinvestment allowances, exemption
from withholding taxes and exemption from taxes on importation. (Har Govind, 2005)

8.

It is estimated that a 3 point improvement in the corruption perception index would

almost double the tax corporate tax collection in India.(Ketkar, Kusum W; Murtuza, Athar;
Ketkar, Suhas L ,2005)

9.

.Both direct and indirect taxes are affected by inter governmental transfers. They
inversely depend on the transfers.(Dash, Bharatee Bhusana; Raja, Angara V,2013).

10.

A modern Goods andService tax (GST) would do much to alleviate the problems of
Indias current indirect tax system which is a serious impediment to the formation of a single
common market and further economic growth. The Centre and the States should both have
access to the full GST base. Last but not least, the system of taxation by classification and
valuation should be replaced by a self-assessment system mainly monitored through checks
upon books of account. (Cnossen, Sijbren,2013).
CONCLUSION:
Thus, in India, tax forming a major component of revenue, tax evasion is one of the major
issues. Many steps are taken by government to reduce tax evasion. Value added tax has
different effects on the society. Many efforts are taken to increase foreign direct investment to
strengthen economy. Introduction of GST will help to reduce problems of tax system in India
and lead to its improvement.
REFERENCES:

1.

Cnossen, Sijbren (2013):Preparing the way for a modern GST in India in

International Tax and Public Finance,Aug 2013 Springer Science & Business Media (New
York).

2.

Das-Gupta, Arindam; Gang, Ira N (2000): Decomposing Revenue Effects of Tax

Evasion and Tax Structure Changes in International Tax and Public Finance,March, 2000,
Springer Science & Business Media(New York).

3.

Das-Gupta, Arindam; Ghosh, Shanto; Mookherjee, Dilip, (2004): Tax Administration

Reform and Taxpayer Compliance in India in International Tax and Public
Finance,September, 2004, Springer Science & Business Media(New York).

4.

Dash, Bharatee Bhusana; Raja, Angara V(2013):Intergovernmental Transfers and

Tax Collection in India: Does the Composition of Transfers Matter? In Public Budgeting &
Finance,Blackwell Publishing Ltd(Maiden).

5.

Eigner, Richard M (1959): Business And EconomicsPublic Finance, Taxation,

Political Science in National Tax Journal,June, 1959 , National Tax Association
(Washington)

6.

Goode, Richard (1956):Report of the India taxation enquiry commissionin

National Tax Journal,June, 1956, National Tax Association(Washington)

7.

Har Govind (2005):Important Fiscal Changes and Tax Developments in India

through the Finance Act 2005 in Intertax, November, 2005,Springer Science & Business
Media (Deventer).

8.

Jayaraman Vijayakumar; Rasheed, Abdul A; Krishnan, V S (2005):Corruption and

taxation: lessons from the indian experiencein Journal of Public Budgeting, Accounting &
Financial Management,Academics Press, Florida Atlantic University
(Boca Raton).
9.
Ketkar, Kusum W; Murtuza, Athar; Ketkar, Suhas L (2005),:Impact of corruption on
foreign direct investment and tax revenuesin Journal of Public Budgeting, Accounting &

Financial Management,Academics Press, Florida Atlantic University

(Boca Raton).
10.
Tripathi, Ravindra; Sinha, Ambalika; Agarwal, Sweta (2011),:The effect of value
added taxes on the Indian society in Journal of Accounting and Taxation,June, 2011,
Academic Journals(Victoria Island).

Full Overview Of Direct & Indirect Taxation Structure In India

Bhavesh Savla
15 Min Read

207 Shares

Share on Facebook
100

Twitter
10

linkedin
18

reddit

gmail
79

This paper seeks to provide a bird eyes view of the taxation structure in
India. The topics broadly covered here are Direct Taxes (Income Taxes)
and Indirect taxes (At Central Government level and State Government level). The
other level of classification can be based on who levies the taxes. It is an
overview and not supposed to be a comprehensive in-depth analysis of different
taxes.
Central Government levies taxes on the following:

Income Tax: Tax on income of a person

Customs duties: Duties on import and export of goods

Central excise: Taxes on Manufacturing of dutiable goods

Service tax: Taxes on provision of services

State Governments can levy the following taxes:

Value Added Tax (VAT): This is tax on sale of goods. While intra-state sale of
goods are covered by the VAT Law of that state, inter-state sale of goods is
covered by the Central Sales Tax Act. Even the revenue collected under Central
Sales Tax Act is done so by the State Governments themselves and actually the
Central Government has no role to play so.

Stamp duties and Land Revenue: Since land is a matter on which only State
Governments can govern, thus the Stamp duties on transfer of immovable
properties are levied by State Governments.

State Excise on Liquor and certain agricultural goods.

Apart from the above, certain powers of taxation have been devolved in the
hands of local bodies. These local governing bodies can levy taxes on water,
property, shop and establishment charges etc.
Direct Taxes

They are called so as the burden of taxation falls directly on the tax payer.
Under the Income Tax Act, 1961 The Central Government levies direct taxes on
the income of individuals and business entities as well as Non business entities
also. The taxation level depends on the residential status of individuals. The
thumb rule of residential status is that an individual becomes resident in India if
he has remained in India for more than 182 days in a particular residential year.
If he becomes resident in India, then his global income i.e. income earned even
outside India is taxable in India. This has to be noted very carefully by
Expatriates on deputation to India. They need to plan their stay in such a
manner as to avoid becoming a resident in India. The following para explains
this in a slightly more detailed manner:
Tax Resident

An individual is treated as resident in a year if present in India:

1. For 182 days during the year or
2. For 60 days during the year and 365 days during the preceding four years.

So an expatriate has to time his stay in India by taking into account the above.
So what is taxable for a Resident but Not Ordinarily Resident?

A resident who was not present in India for 730 days during the preceding seven
years or who was nonresident in nine out of ten preceding years is treated as
not ordinarily resident. A person not ordinarily resident is taxed like a nonresident but is also liable to tax on income accruing abroad if it is from a
business controlled in or a profession set up in India.

What is taxable for a Non-Resident?

Non-residents are taxed only on income that is received in India or arises or is

deemed to arise in India. He is entitled to get benefit of any double taxation
avoidance agreement that his country of residence has signed with India. Then
he shall be liable for taxes at rates mentioned in the Indian domestic tax laws or
the rates mentioned in the Double Taxation Avoidance Agreement whichever is
lower.

What is taxable for a Resident?

His global income is taxable irrespective of whether earned or related or

received in India.
Thus any expatriate needs to plan his stay so that he does not, unwittingly,
become a Resident for tax purposes.
Taxation slabs for Individuals for the FY2015-16:
1. Individual resident aged below 60 year.
Income Slabs

Tax Rates

Where the taxable income does not

exceed Rs. 2,50,000/-.

NIL

Where the taxable income exceeds

Rs. 2,50,000/- but does not exceed
Rs. 5,00,000/-

10% of amount by which the taxable income exceeds

of Resident Individuals only ) : Tax Credit u/s 87A 10
maximum of Rs. 2000/-

Where the taxable income exceeds

Rs. 5,00,000/- but does not exceed
Rs. 10,00,000/-.

Rs. 25,000/- + 20% of the amount by which the taxabl

5,00,000/-.

Where the taxable income exceeds

Rs. 125,000/- + 30% of the amount by which the taxab

Rs. 10,00,000/-.

10,00,000/-

2. Individual resident who is of the age of 60 years or more but below the age of 80 years at
any time during the previous year
Income Slabs

Tax Rates

1.

Where the taxable income does not

exceed Rs. 3,00,000/-

NIL

2.

Where the taxable income exceeds

Rs. 3,00,000/- but does not exceed
Rs. 5,00,000/-

10% of the amount by which the taxable income e

300,000/-.Less : Tax Credit u/s 87A 10% of taxab
of Rs. 2000/-.

3.

Where the taxable income

exceeds Rs. 5,00,000/- but does not
exceed Rs. 10,00,000/-

Rs. 20,000/- + 20% of the amount by which the tax

5,00,000/-

4.

Where the taxable income

exceeds Rs. 10,00,000/-

Rs. 120,000/- + 30% of the amount by which the ta

10,00,000/-.

3. Individual resident who is of the age of 80 years or more at any time during the previous
year
Income Slabs

Tax Rates

1.

Where the taxable income does not

exceed Rs. 5,00,000/-

NIL

2.

Where the taxable income

exceeds Rs. 5,00,000/- but does not

20% of the amount by which the taxable income

exceed Rs. 10,00,000/-

3.

Where the taxable income

exceeds Rs. 10,00,000/-

Rs. 100,000/- + 30% of the amount by which the

10,00,000/-

Amounts invested in certain investments like Employee Provident Fund, Public

Provident Fund, Tax saving Fixed Deposits, are also eligible for deduction under
section 80C upto Rs.1,50,000 per year.
Corporate Taxation:
The rate at which Corporates are taxed in India is 30% plus a 3% cess. Thus the
total comes to 30.9%. Further if the taxable income is more than Rs. 10 million,
then there is an additional surcharge of 12% on the base tax rate.
Dividend Distribution Tax (DDT)
Under Section 115-O of the Income Tax Act, any amount declared, distributed or
paid by a domestic company by way of dividend shall be chargeable to dividend
tax. So if a company declares divided, it has to pay an effective rate of 16.995%
on the dividends declared. This is apart from the 30.9 % taxes mentioned above.
The rationale for this tax is that after paying this tax, the dividend so declared
becomes tax free in the hands of the recipient of dividend.
Minimum Alternative Tax (MAT)
Normally, a company is liable to pay tax on the income computed in accordance
with the provisions of the income tax Act, but many a times due to exemptions
under the income tax Act, there is huge actual profit as shown in the profit and
loss account of the company but no taxable income. To overcome this issue, and
in order to bring such companies under the income tax act net, the concept of
Minimum Alternate Tax (MAT) has been introduced. The present rate of MAT is
19.05%.
Another aspect which must be looked into is the concept of Witholding
Taxes; also called as Tax Deduction at Source (TDS).
Tax Deduction at Source (TDS)
This point is being specifically mentioned because the penalties of noncompliance are very stringent. As per the provisions of the Indian tax laws,
certain payments are covered under tax withholding norms. Under this, the

person responsible for making any payment is required to withhold a certain

specified percentage of the payment amount as taxes and deposit it with the
Government treasury. In addition, the person is required to prepare a certificate
of tax deduction and provide it to the person on whose behalf the deductions
are made. Every quarter i.e. 3 months, returns have to be filed by the deductor
and credit must be given to the deducted in the returns.
The following are the areas where tax withholding is most common in the
Indian scenario:
Salaries

The salaried employees of the drawing beyond the minimum taxable salary
would be covered under the tax withholding requirements and annual tax
withholding returns are to be submitted with the Revenue authorities.
Contractors

Payments made to a contractor for carrying out any work would require
withholding of tax at source from such payments, ifcertain threshold limits are
crossed. Typical examples of such payments will include:

Advertising payments

Broadcasting and telecasting payments

Office renovation payments

Vehicle hire payments

Catering payments.

Job Work

Courier

Professional Services

Payments made for professional and technical fees to Doctors, Chartered

Accountants, Lawyers, Management Consultants, Engineers, Architects and
other professionals would fall under this section and tax would be required to
be withheld from their payments. Such withheld tax shall be deposited with the
Government.
Rentals

Payments for rentals would attract tax deduction at source.

Indirect Taxes
In India, indirect taxes is a vast ocean as there are number of taxes to be paid on
manufacture, import, sale and even purchase in certain cases. Further the law is
governed less by the Acts and more by day to day notifications, circulars and
orders by the Governing bodies. So an explicit understanding is very much
essential. A simplistic way to understand Indirect taxes is as follows:
No.

Nature of Activity

Applicable Law

Provision of
services

Service Tax.Generally uniform rate of 12.36% (proposed to be

14% from 01-04-2015) is charged by Service tax Provider from
recipient except in certain cases where liability is split between
the provider of servicer and the recipient of service.Also in
some cases, where there is mixed component of provision of
service and provision of materials, there is some abatment
given and service tax charged on the remaining part.

E.g. For restaurants, the service tax is charged only on

40% of the bill as it is assumed by Govt that the total bill
consists of 60% materials and 40% service.
There is an exemption on payment of Service tax if the
total turnover did not cross Rs. 1 million in the previous
Financial Year.

Manufacture of
Excisable Goods

Central Excise duties are leviable on the manufacture of goods.

However, the incidence of duty is postponed to the clearance
of goods from factory or approved warehouse. It means the
duty is payable once the manufactured goods leave the
Warehouse/ Factory.Below are some of Excise duties
leviableBasic Basic Excise Duty is the most common Excise
duty on manufacture of Goods. It is imposed under section 3
of the Central Excise Act of 1944 on all excisable goods other
than salt produced or manufactured in India, at the rates set
forth in the schedule to the Central Excise tariff Act, 1985, falls
under the category of basic excise duty in India.

it is mandatory to pay duty on all goods manufactured,

unless exempted. For example, duty is not payable on the

goods exported out of India or if the turnover does not
reach Rs. 15 million in a year or based on certain process
of production.
Excise duty rates are different for each product and
based on harmonized system of classification.
The rates can be found in the following link
http://www.cbec.gov.in/excise/cxt2013-14/cxt-1314idx.htm
Apart from the basic excise duty, the other types of Excise
duties are as follows but they are not of much relevance
to the vast majority of goods as they are very specifically
levied.

Special Excise Duty : This is the duty leviable under

Second Schedule to the Central Excise Tariff Act,
1985 at the rates mentioned in the said Schedule. At
present this is leviable on very few items.

Additional Duties of Excise (Textiles and textile

Articles) : his duty is leviable under section 3 of
the Additional Duties of Excise (Textiles and Textile
Articles ) Act, 1978. This is leviable at the rate of fifteen
percent of Basic Excise Duty payable on specified textile
articles.

Additional Duties of Excise (Goods of Special

Importance) : duty is leviable under the Additional
Duties of Excise (Goods of Special Importance) Act,
1957. on the specified goods mentioned in its First
Schedule.

National Calamity Contingent Duty (NCCD): This duty

is levied as per section 136 of the Finance Act, 2001, as
a surcharge on specified goods like like pan masala,
branded chewing tobaco, cigarettes, domestic crude oil
and mobile phone.

It should be noted that the excise duty is not on sale but

on removal or clearance of goods which may or may
coincide with sale.

3.

Import of Goods

Customs duty is required to be paid whenever goods are

imported from other countries in India. Normally on Exports,
there is no Customs Duty except for export of a few items.
Thus the taxable event is the import/ export of goods.There
are mainly two ways in which Customs is calculated and
collected:
1. Specific Duties: Specific custom duty is a duty
imposed on each and every unit of a commodity
imported or exported. For example, Rs.5 on each meter
of cloth imported or Rs.500 on each T.V. set imported.
In this case, the value of commodity is not taken into
consideration.
2. Advalorem Duties: Advalorem custom duty is a duty
imposed on the total value of a commodity imported or
exported. For example, 5% of F.O.B. value of cloth
imported or 10% of C.LF. value of T.V. sets imported. In
case of Advalorem custom duty, the physical units of
commodity are not taken into consideration. Ad
valorem duty is the predominant mode of levy of
customs. Thus the value of goods has to be determined
as per customs law before the Goods are released from
Customs control.

The rates of taxation in Customs can be found here:

Apart from the basic Custom duties, there are some other
custom duties levied in certain circumstances like:
Countervailing Duty of Customs (CVD)
To give Indian manufacturing a level playing field, CVD is
imposed. It is equal to the excise duty on like articles
produced in India. The base of this additional duty is c.i.f.
value of imports plus the duty levied earlier. If the rate of
this duty is on ad-valorem basis, the value for this

purpose will be the total of the value of the imported

article and the customs duty on it (both basic and
auxiliary).
Anti Dumping duties
These custom duties are basically intended to provide
domestic manufacture against dumping of goods by
foreign countries in India at dirt cheap ; even below cost
prices. Mainly targeted against cheap Chinese imports.
These are allowed after following WTO norms in this
regard.

Sale of Goods

Value Added Taxes (VAT) for intra-state Sales and Central Sales
Tax (CST) for inter-state sales.VAT is actually state specific since
the states and not Central Government is empowered to
collect Taxes on Sale of Goods. Thus each state has its own
VAT specific Act and Rules. In Maharashtra, it is the
Maharashtra Value Added Tax Act (MVAT) which governs the
sale of goods.The usual rate of taxes are 5% and 12.5%. Goods
which are specified are covered under 5% and others are
covered in 12.5%. Further there are some high value
transactions like trade in bullion which attracts 1% tax. Input
credit is available on the goods purchased and can be set off
against the MVAT payable.

Under MVAT Act, if trader has a turnover of below Rs. 1

million in previous financial year, then MVAT is not
applicable in present year upto Rs. 1 million. Please note
that it is optional and if the dealer. Trader does collect
MVAT from the purchaser then the same will have to be
deposited with the Government.
Also MVAT is not applicable if the Goods are exported
under H Form i.e. for exports.
Please note that the above are not mutually exclusive. For example, if the
goods are manufactured and sold by manufacturer , then both Central Excise
and MVAT are applicable.

Further there are some local indirect taxes levied like Local Body Taxes (LBT) or
Octroi. These are expected to be abolished some time in future after
introduction of Goods and Service Taxes (GST).
Going forward, to avoid the cascading effect of different types of duties and also
to avoid the specific problem of non-availability of input credit for one type of
tax against another, the Government intends to create one single tax
everywhere which shall be called as the Goods and Service Taxes (GST). This is
major tax reform intending to create one major market. It is expected to come
by April 2016.
[box type=shadow ]Please note that this write-up is intended to give a general
overview and under no circumstances, can be taken as actionable professional
advice. While all due care has been taken to provide accurate information, readers
are expected to take further professional advice. No liability rests or exists or is
created against the author for any action taken by anyone on the basis of this article.
[/box]
-_____________

Tax comparisons around the world

Whatever your political take on taxation the personal impact is clear: the level of
taxation in your country of residence determines how much of the money you earn

you get to take home and how much of the wealth you accrue you get to keep. It
affects the neighbourhood in which you can afford to live, the luxuries you can afford
to buy and your chances of getting on the property ladder.
Few - mostly the exceptionally wealthy - will move to a new country solely because it
offers a lower rate of tax. But the level of taxation in your country of destination can
make you think twice about the feasibility of starting a new life there. which is why
weve put together the following comparison of tax rates in the worlds most popular
expat destinations.

Income Tax by Country

This is the tax you pay on your personal income. This might consist of a payroll tax,
the tax you pay on money earned through self employment, pensions or other
investments (e.g. interest earned on savings, rental income or share dividends).

THINKING OF MOVING ABROAD?

Fill out form at the top of this page to get up to 70% off your shipping quote
by comparing suppliers!

GET FREE QUOTES

The following table gives an overview of income tax rates in our most popular
destination countries, after which well drill into each country in more detail.

Income tax by country comparison

Country

Income Tax Range

Average
Annual
Salary

Tax Rate on Average

Salary

Australia

0-47%

AUD
77,433

32.5%

Canada

15-33% (federal) +
4 -25.75%
(provincial)

CAD
62,420

20.5% (federal) +
provincial (e.g. 9.15%
in Ontario)

France

0-45%

EUR
36,066

30%

Singapore

0-20%

SGD
88,415

7%

Switzerlan
d

0-40% (levied at
federal, cantonal
and municipal
levels)

CHF
86,812

e.g. 21% (Genve

commune in Geneva
canton)

UAE

0%

N/A

0%

United
Kingdom

0-45%

GBP
27,600

20% (basic rate after

personal allowance of
10,600)

USA

0-39.6% (federal)+
0-13.3% (state) +
0-3.645% (local)

USD
57,139

25% (federal) +
provincial (e.g. 5.9% in
New York) + (e.g
3.645% in NYC)

This table doesnt include other payroll deductions like National Insurance (UK) or
Medicare contributions (Australia).

Tax in Australia
The tax system in Australia is complicated by the federal structure. Taxes can be
levied by the federal government, state government and local government. For three
financial years (from 1 July 2014 until 30 June 2017), the government has introduced
a Temporary Budget Repair Levy of 2% to the top marginal tax rate, increasing the
top individual marginal tax rate to 47% (plus at least 2% Medicare levy)
Income Tax
Only the federal government levies an income tax. The personal tax allowance is
AUD 18,200 after which tax rates range from 19% to 45%. Capital gains are treated
as part of income for taxation purposes.
Medicare Levy
This is an income tax surcharge levied by the federal government to fund the
Medicare program. It currently stands at 1.5% of taxable income.
Goods and Services Tax
Levied by the federal government at 10% on most goods and services.
Property Taxes
All states with exception of the Northern Territories levy an annual land tax for
owners of land beyond a threshold value. Stamp duties on transfers of land vary
from state to state.

Tax in Canada
Taxes in Canada are levied at the federal and provincial level.

Income Tax
Both the federal government and provincial governments levy an income tax on the
total taxable income of an individual. At the federal level there is a personal
allowance of CAD 11,038 after which tax rates range from 15% to 29%. Provincial
tax rates range from 4% to 25.75% where each province has its own progressive
scale (except Alberta which has a flat rate). Only half of a capital gain is counted as
income - the other half is exempt.
Sales Taxes
These are also levied by both the federal government (the Goods and Services Tax
at 5%) and the provinces (the Provincial Sales Tax which ranges from 2% to 12%).
The two taxes are often combined into a single Harmonised Sales Tax (HST) for
simplicity.
Property Taxes
These come in two forms, both levied by municipal governments: a property tax
which is paid property owners and which is based on the value of the property; a
property transfer tax which is paid by people buying property and which is typically
levied at 0.5% and 2% of the purchase value.

Tax in France

Income Tax Rate in France

As part of Frances austerity measures, a surcharge has been imposed on high
incomes for income received in 2012, 2013 and 2014. This is an additional 3% for a
single person where income is between 250,000 and 500,000 per part (nothing is
due from a family) and 4% for income exceeding 500,000 per part for an individual;
3% for a family. If income exceeds 1,000,000 per part, the rate is 4% regardless of
family circumstances.

The taxable income to be assessed is the total income of the household. To avoid
the higher rates of tax where there is a high income, but more than one household
member, the family is divided into a number of parts familiales.
The total income is divided by the number of parts. The income tax scale rates are
then applied to this lower figure, and having computed the income tax due, it is
multiplied back up by the number of parts.

Tax in Singapore
The city-state of Singapore levies relatively few taxes and generally only levies taxes
on income earned in Singapore, not foreign income.
Income Tax
The personal allowance is SGD 20,000 after which the tax rate ranges from 2% to
20%.
Property Tax
Levied at 10% the expected rental income of a property but there are reductions if
you occupy the property yourself (where rates are 0% to 6%). Stamp duty for buyers
of property ranges from 1% to 3% of the purchase value.
Goods and Services Tax
A value added tax levied at 7% on most goods and services.

Tax in Switzerland
Switzerland wins our award for most complicated tax system hands down. (Okay, the
US is probably equally complicated, but given its size well make an allowance). The
Swiss confederation, the cantons and the municipalities are all able to levy taxes.
The amount of income tax you pay therefore depends not only on which canton you
live in but also which administrative district of your town you live in. Sometimes
moving just a few streets away can have a significant impact on your disposable
income.
Federally applied taxes include VAT of 8% on most goods and services (though a
reduced rate of 2.4% is applied to certain goods such as foodstuffs, drugs and
books); a withholding tax of 35% on income from e.g. dividends, interest on loans,
lottery prizes and private pension payments; and stamp duty on the proceeds of e.g.
sales of stocks and bonds.
Taxes applied at the cantonal level include property taxes (both on the sale value
and on any profits made), inheritance taxes, dog ownership, motor vehicle ownership
and theatre tickets.
In short, if youre moving to Switzerland, you still have a lot more tax research ahead
of you...

Tax in the UAE

There is very little taxation in the United Arab Emirates. The federal government
does not levy any income tax and, while the emirates themselves are entitled to levy
income tax this normally only applies to foreign banks and oil companies.
Municipal Taxes
These are levied in most Emirates at 5% of annual rental paid on residential property
(10% for commercial property).
Sales Taxes
There is a 5% tax on hotel services and entertainment.

Tax in the UK
The tax system in the UK is relatively straightforward with most taxes levied at the
state level. Tax rates are mostly progressive (i.e. there are different tax brackets
depending on your income and assets).
Income tax in the UK
The Scottish rate of Income Tax is 10% but youll pay the same overall rate of
Income Tax as people in the rest of the UK. This is whether you pay the basic,
higher, or additional rates.
The table shows the total Income Tax rate youll pay from 6 April 2016, if you have a
standard Personal Allowance (which is up to 11,000). You dont get a Personal
Allowance if you pay additional rate tax.

Income tax by country comparison

UK rate for
England, Wales
and Northern
Ireland

Income
band

UK rate
paid in
Scotland

Scotti
sh
rate

Total rate
for Scottish
taxpayers

Basic rate 20%

11,000 43,000

10%

10%

20%

Higher rate 40%

43,001 150,000

30%

10%

40%

Additional rate 45%

Over
150,000

35%

10%

45%

National Insurance
This is a separate payroll tax paid by both employers and employees to cover the
cost of state benefits like the National Health Service and state pensions. There are
different bands for different levels of earnings. Typically an employee will pay about
12% of their earnings as NI contributions.
Council Tax
This is paid to your local authority for the provision of locally administered services
like refuse collection. It is levied at a rate which depends of the value of the property
you live in (regardless of whether you rent or own the property). There are reductions
for people who live alone (25%), students (exempt) and people with disabilities
(varies).
Property Taxes
The UK levies no direct property taxes but charges the buyers of property Stamp
Duty (i.e. property transfer tax) at a rate determined by the purchase value of the
property. This ranges from 0% to 15% (on properties worth 2 million or more).
Capital Gains Tax

Levied at a rate, which depends on your total taxable income, between 10% and
28%.
VAT
This is a sales tax levied at the point of sale at a standard rate of 20% or a reduced
rate of 5% (for e.g. fuel). Many items are exempted e.g. basic foodstuffs, childrens
clothes and prescription medicine.

Tax in the USA

In the United States taxes are levied at federal, state, and local government level.
Income Tax
Federal income tax currently kicks in when an individuals income exceeds USD
3,900 and then ranges from 10% to 39.6% as income increases. There is also a
standard deduction available depending on your filing status which ranges from USD
6,100 to USD 12,200. Capital gains are treated as part of your taxable income.
Most states levy an income tax. Rates in the most popular states among
international movers are as follows:

Income tax in USA comparison for major states

State

State income tax rates

New York

~4% to 8.8%

California

1% to 13.3%

Florida

None

Texas

None

Some local governments also levy income taxes. New York City for example charges
an income tax which ranges from around 2.9% to around 3.6% depending on your
taxable income.
Some states levy the income tax on total taxable income while others use the
amount of income after federal tax has been deducted.
Social Security and Medicare Taxes
These are levied on employees at the federal level. Social security taxes are 6.2% of
wages (up to a maximum amount) and Medicare taxes are 1.45% of total wages.
Property and Sales Taxes
These are levied at the state and local level.

All figures quoted believed to be accurate at the time of writing. MoveHub does not
provide tax advice.