Indian Tax System- For Betterment of the Nation

Posted in Finance Articles, Total Reads: 681 , Published on 05 August 2015

“Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” - Ronald Reagan

Indian tax system is a diversified system with numerous types of taxes. Tax is a compulsory levy by the Government on the consumption of goods and services as well as on income that we earn. It is the payment that we make to the Government which it utilizes to provide us basic facilities such as defense, telecommunication, infrastructure etc. and for the betterment of the society and nation at large. The Indian Taxonomy is bifurcated into two types of taxes namely Direct Tax and Indirect Tax. Direct tax includes personal Income Tax, Wealth tax, Gift tax etc. where the incidence of tax lies on the taxpayer and it cannot be shifted whereas indirect tax includes Service tax, Excise, Customs Duty, VAT etc where the incidence of tax can be shifted. 

The Indian tax structure is overburdened with various kinds of problems faced by the taxpayers. One of the most severe one faced by the taxpayers is due to the multiplicity of tax. Tax imposed at different levels of Government such as Union, State and Local Authorities and at different levels of supply – distribution chain such as at manufacturing stage, trading stage etc. has lead to the cascading effect of taxes which is one of the most critical issue faced by Indian taxpayers. For filing returns with various levels of authorities and for paying taxes timely one has to maintain separate record for each of them which in itself are a tedious job.


Another problem arises regarding the permanency of certain taxes. Certain taxes are imposed on Adhoc basis to meet the deficits in the economy and are withdrawn later on for political reasons. At every budget some of the provisions are added while some of the old provisions are deleted, new concessions are added and existing concessions are withdrawn, new taxes are introduced while the existing ones are abolished, tax rates are changed frequently. As a result of such numerous changes, long term planning gets hampered. This leaves the taxpayers with no other option than to remain alert and updated all the time with respect to new tax laws and file necessary documents and taxes within the time constraints in order to avoid penalty and unnecessary legal issues.

One of the important features of the tax system is its rigidity. In India, the income from taxation does not automatically increase in proportion to the increase in national income. Hence as a result of this the Indian Government has to increase taxes every year in order to maintain a constant tax income ratio. Moreover the Indian tax system is so complex and difficult to understand that it provides enough scope for avoiding and evading taxes. The complexity in the tax structure persuades people in the economy to indulge in malpractices such as evading taxes or concealing taxes. The taxpayers do not wish to take the pain to understand the whole complex system leading to a loss to Indian revenue system. To understand and comply with the Indian tax system they are required to appoint professionals, which again is an extra cost to the taxpayers. So this is the reason they start avoiding the system and start finding loopholes in the system. The complex nature of tax laws for which no clarifications are available gives the tax authorities more powers to interpret the tax laws in different manners and issue assessment orders accordingly. This leads to litigation and delays in collecting taxes and hence unnecessary blockage of revenue. The taxpayers are treated with suspicion and honest taxpayers suffer. The taxpayers lose both time and money in litigation.

Now coming to online filing of tax returns we can conclude say that it’s not everyone’s cup of tea. One needs to understand the whole process, the rules, the regulations and the compliance requirements for efficient and effective filing of online or manual tax returns. Most of the taxpayers do not have exact idea of the tax laws and thus are required to hire professionals for filing of returns which in turn adds to the cost of the taxpayers. The diversified nature of tax structure acts as a hindrance in achieving the business targets of businessmen as most of their time and efficiency gets exhausted in


In order to overcome the problems above the Government has come up with the concept of Direct Tax Code(DTC) and Goods and Service Tax(GST). This is a major reform intending to create a major market as various taxes at various level of distribution chain such as Service tax, sales tax, entry tax etc. shall stand abolished. The taxation system should be strengthened which shall bring upon the sense of belonging to the taxpayers, not of unbearable burden. Taxpayers need to get more educated and trained regarding the importance of their share of contribution towards the growth of the nation.


This article has been authored by Saurabh Kumar Agrawal from IIM Kashipur.





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