4.4   How Are Taxes Levied?

. How Are Taxes Levied? Tax is levied by the government progressively, proportionately as well as regressively. Progressive Tax Progressive tax rate is one in which the rate of taxation increases (multiplier) as the tax base increases (multiplicand). In the case of a progressive tax, when income increases, the tax rate also increases. Example: Tax Base Tax Rate Amount of Tax ` , % ` ` , % ` ` , % ` Proportionate Taxes Tax levied on goods and service in a fixed portion is known as proportionate taxes. All tax payers contribute the same proportion of their incomes. Example: Tax Base Tax Rate Amount of Tax ` , % ` ` , % ` ` , % ` Indirect Taxes If the burden of the tax can be shifted to others, it is an indirect tax. The impact is on one person while the incidence is on the another person. Therefore, in the case of indirect taxes, the tax payer is not the tax bearer. Some indirect taxes are stamp duty, entertainment tax, excise duty and goods and service tax (GST). Stamp Duty Stamp duty is a tax that is paid on official documents like marriage registration or documents related to a property and in some contractual agreements. Entertainment Tax Entertainment tax is a duty that is charged by the government on any source of entertainment provided. This tax can be charged on movie tickets, tickets to amusement parks, exhibitions and even sports events. Excise Duty An excise tax is any duty on manufactured goods levied at the movement of manufacture, rather than at sale. Excise is typically imposed in addition to an indirect tax such as a sales tax. Goods and Service Tax (GST) The goods and service tax (GST) is one of the indirect taxes. The GST was passed in Parliament on March . The act came into effect on July . The motto is one nation, one market, one tax. Structure of Goods and Service Tax (GST) State Goods and Service Tax (SGST): Intra state (within the state) VAT/sales tax, purchase tax, entertainment tax, luxury tax, lottery tax and state surcharge and cesses Central Goods and Service Tax (CGST): Intra state (within the state) Central Excise Duty , service tax, countervailing duty, additional duty of customs, surcharge, education and secondary/higher secondary cess Integrated Goods and Service Tax (IGST): Inter state (integrated GST) There are four major GST rates: ( %, %, % and %) Almost all the necessities of life like vegetables and food grains are exempted from this tax. - - . . AM - - . . AM Government and Taxes Regressive Taxes It implies that higher the rate of tax lower the income groups than in the case of higher income groups. It is a very opposite of progressive taxation. Progressive Tax Proportional Tax Regressive Tax Income increases Income Increases Income Changes Tax Increases Tax Decreases Same Tax always E.g. Income Tax E.g. Corporate Tax E.g. Sales Tax