- Team Orbis Economics
In our previous edition on Union
Budget concepts we started explaining taxes, with a focus on direct taxes. In
this one, we look at indirect taxes. Along with announcements on direct taxes
like income tax and corporate tax, the annual Union Budget also announces
changes to indirect taxes like service tax, excise duty, customs duties and
value added tax. Indirect taxes are important because they impact the final
price that can be charged to the consumer by a business and the costs as well
and the general price levels for the consumer.
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What are indirect taxes?
An indirect tax is levied on goods
and services, as compared to a direct tax that is levied on persons or
organisations. While a direct tax obligation has to be borne by the person or
organisation concerned, the indirect tax obligation can be passed on to customers
or consumers.
What are the major indirect taxes in India today?
· Exise
Duty or Central Value Added Tax (CENVAT) – is the tax charged on the
manufacture or sale of a good in India by the Central Government. The standard
rate of excise duty was increased to 12% from 10% in the last budget. A change
in this tax could affect the price of semi-finished inputs as well as the price
of a product for a manufacturer.
· Value
Added Tax (VAT) – is a tax charged on the difference between the price of a
product and the cost of producing it. It is essentially a sales tax charged by
the State Government. Being a state tax, the VAT is different for various parts
of India. Being a state subject, changes to this tax rate are not announced in
the Union Budget.
· Service
Tax – is a Central Government tax charged to service providers. It is a tax
on the gross value of service provided to consumers. The current service tax
rate in India is at 12%, after having been increased from 10% in the last
budget. For a service provider, changes to this tax will change the final price
of the service. As a customer availing of a service, this tax will impact your
costs of living or costs for business.
· Customs
Duty – are the duties charged on both imports and exports of goods from
India, with import duty being the major customs duty. The peak rate of customs
duty for non-agricultural goods was maintained at 10% in the last budget.
What is expected in Union Budget 2013-14 with respect to indirect taxes?
The implementation of a uniform
Goods and Services Tax (GST) is one of the most awaited indirect tax moves of
the government. GST aims to be an umbrella indirect tax that will replace all
the other indirect taxes in India today.
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