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The taxation policy that existed inIndia between 1950&1990
had anumber of defects which defeatedmany objectives of taxation
policy.In the opinion of TRC (Tax reformCommittee)Indias tax system
has
grown over time to becomeinefficient, difficult to
administers.Some of the defects are :
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Very high tax rates-Central tax rates in India were
much higher compared to the average tax rates incomparable
countries.Tax system of cascading nature- It means taxespiling on
taxes and tax on tax so that the actual taxburden borne by the
society is much higher thanone calculated on the basis of tax
rates. Administratively complex tax system- complexeven to be
understood by administer. Anomalies in individual taxes- Apart
frompointing out the defects in the tax system TRCpointed out the
anomalies in the individual taxes
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3 MAJOR TAXESPERSONAL INCOME TAX
It has serious anomalies and inequities. ANOMALIES- It provides
tax shelters to the members of
parliament, Central Govt Ministers, a section of Government
officials and top executives of PrivateFirm by living their perks
tax free.
INIQUITOUS : It descriminates between diffferent
categories of Tax Payers.
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IMPORT DUTIES According to TRC it had the following anomalies:1.
The average rate of Import duties was much higher
than international standards.2. Tarriffs were widely disperrsed
and complex.3. Import Tariffs had a multiple rate system
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EXCISE DUTIESThe largest contributor to the central revenue and
the
following defects:
1. It is of cascading nature as it makes the samecommodities
taxable at different stages of production
2. Excise Duty fell also on capital goods like machinery
tools etc.3. The excise concession for small and tiny sector
encouraging manipulation of firms size for thepurpose of tax
evasion
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TAX REFORMS IN
1991
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PERSONAL INCOME TAXIn this, rates structure has been reduced
from about 6 slab rates in 1980 to 3 slabrates: 10%, 20% and
30%.
Personal Income tax exemption limit israised almost in every
budget on thebasis of inflation rate for differentcategories of
Income Tax payers.
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COMPANY INCOME TAXIt has been reduced to 40% fordomestic and 45%
for foreigncompanies.
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EXCISE DUTIES ON MODVATThe number of classifications of
commodities under tax laws has been
reduced.The procedure of Excise calculation hasbeen
simplified.
The process to replace excise duties withMODVAT is underway.
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IMPORT DUTIESThe duty rates have been slashed across theboard so
that the weighted average effective
rates comes down from 85% to 45% andthen to 25% in 2006 2007
budget.
