Economic Legislations

Economic LegislationsEconomic LegislationsEconomic LegislationsEconomic Legislations

Economic LegislationEconomic LegislationEconomic LegislationEconomic Legislation

– Any policy has two fundamental aspects-• Formulation• Implementation– The bridge between the two is provided by

legislations.– Planners, legislators and executors have act in

concert so as to make the policy discussions must be followed by a few illustrative examples of economic legislations, so that the analyst may understand particularly the interaction between the economic and politico-legal environment of a country.

Monopolies and Restrictive Trade Practices ActMonopolies and Restrictive Trade Practices Act( MRTP) 1969( MRTP) 1969

Monopolies and Restrictive Trade Practices ActMonopolies and Restrictive Trade Practices Act( MRTP) 1969( MRTP) 1969

The MRTP Act enacted in December 1969 and brought into force with effect from June 1 1970

Preamble“ An act to provide that the operation of the economic system does not result in the concentration of economic power to the detriment for the control of monopolies, for the prohibition of monopolistic and restrictive trade practices and matters connected there with or incidental there to”

ObjectivesObjectivesObjectivesObjectives

It has three objectives – To control and regulate the concentration of economic power in a few hands of business and industry. ( Ch. III of the Act)

To control monopolies and monopolistic trade practices. (Ch. IV)

To prohibit restrictive trade practices unless any one of them can be justified in the public interest. (CH. V and VI)

Applicability of the ActApplicability of the ActApplicability of the ActApplicability of the Act

Prior to the notification dated 27/09/91 the MRTP Act was not applicable to-

Undertakings owned or controlled by Govt. Trade unions and other associations of workmen

Financial Institutions but after the above notification the act was made applicable to all undertakings and financial institutions except three undertakings-

Applicability of the ActApplicability of the ActApplicability of the ActApplicability of the Act

Owned or controlled by a govt. company or the govt, engaged in the production of arms and ammunition and allied items of defense equipments, defense aircraft atomic energy etc.

Industry units under the ministry of finance.Trade unions and other association of workmen.

Monopolistic Trade PracticeMonopolistic Trade PracticeMonopolistic Trade PracticeMonopolistic Trade Practice

Under the MRTP Act an MTP defined as a trade practice which had any of the following effects-

Limiting or controlling or distribution of goods or services thereby maintaining their price at unreasonable.

Limiting technical developments or goods or capital investment or allowing the quality or goods and services to deteriorate.

Unreasonably preventing of restricting competition.

Monopolistic Trade PracticeMonopolistic Trade PracticeMonopolistic Trade PracticeMonopolistic Trade Practice

Unreasonably increasing cost or charge for services.

Unreasonably increasing prices of goods or services.

Unreasonably increasing profits on production.

resorting to unfair or deceptive means to reduce or prevent competition in goods or services

Restrictive trade PracticesRestrictive trade PracticesRestrictive trade PracticesRestrictive trade Practices

An RTP under the Act had defined to be the one that had the effect of preventing, distorting or restricting competition in any manner. An RTP in particular had the effect of :

Obstructing the flow of capital or resources for production.

Imposing unjustified costs or restrictions on consumers with regard to the availability of good and services by manipulating prices or conditions of delivery or supplies to market.

Unfair trade PracticeUnfair trade PracticeUnfair trade PracticeUnfair trade Practice

Section 36A of the Act provides that that “UTP means a trade practice for the purpose of promoting sale, use or supply of any goods or for the provision of any services adopts any unfair method or deceptive practices.

Falsely represents that the goods are of a particular standard, quality, quantity, style or model.

Falsely represents ant rebuilt second hand, renovated, reconditioned or old goods as new goods.

Represents that goods or services have sponoship, approval, performance characteristics uses or benefits which such goods or services do not have.

Unfair trade PracticeUnfair trade PracticeUnfair trade PracticeUnfair trade Practice

Makes a false or misleading representation concerning the need for or the usefulness of any goods or services.

Misleads the public concerning the price at which a product or like products or services have been or are ordinarily sold or provided.

Control of MTPControl of MTPControl of MTPControl of MTP

The control over monopolistic trade practice is done through the mechanism of inquiry and suitable orders to remove the undesirable effects of a MTP

The MRTP commission could make an enquiry on the basis of any of the following

A reference received from the central Govt. An application received from DGIR The commissions own information or knowledge. The commission could make an enquiry and submit

report to the central govt. which alone had the power to take decision on such practice. The Govt. can cancel whole agreement containing such a practice.

Control of MTPControl of MTPControl of MTPControl of MTP

The govt order in MTP had to be completed within 30 days and DGIR had to be report such compliance with in 90 days of the issue of orders.

Control Mechanism for RTPControl Mechanism for RTPControl Mechanism for RTPControl Mechanism for RTP

All the agreements containing any of the restrictive clauses to be registered with the DGIR.

The MRTP commission could initiate an enquiry into a restrictive trade practice on the basis of any of the following-

A complaint received from consumer/ consumer organization.

A reference made by the central or state govt.

Its knowledge or information


The commission, in its enquiry, heard all the parties concerned and its decisions fell into one of the following categories-

The practice might be allowed if it was found not prejudicial to the public interest.

cease and desist order might be passed if it was found prejudicial to the public interest.

The agreement might be modified as per orders of the commission.

Proceedings may be dropped if the party on its own promised to discontinue, or not to repeat the such practice in future.

Control UTPControl UTPControl UTPControl UTP

UTP could be passed only if it was prejudicial to public interest.

A practice which was specifically authorized by some existing laws, not actionable under MRTP Act.

MRTP commission will order DGIR to make a preliminary enquiry.

After the MRTP commission investigation, commission can order compensation for loss or damage to the affected person or the party

Directly pecuniaryIndirectly pecuniary Non -pecuniary

Amendments to the MRPT Act (1991)Amendments to the MRPT Act (1991)Amendments to the MRPT Act (1991)Amendments to the MRPT Act (1991)

MRTP Act was amended in December 1991 with a view to make Indian industry more competitive in abroad and retain only those provisions of the act which were essential to control monopolistic and unfair trade practices

The MRTP amendment 1991 could be studied under two heads-

Deletions from the Act Elimination of pre-entry restrictions. removal of the restrictions on acquisition and

transfer of shares.


Amendments to the Act Enlargement of definition of ‘goods’ Enlargement of definition of ‘service’ preliminary investigation by DGIR made optionalPenalty provisions made more stringent New definition of dominant undertaking

Industrial LicensingIndustrial LicensingIndustrial LicensingIndustrial Licensing

“A license is a written permission issued by the central govt. to an industrial undertaking stating such details as the location, the article to be manufactured, production capacity and other relevant particulars”

Objectives To limit industrial capacity To direct investment in industries according to priorities.

to regulate location of industrial units so as to secure balanced regional development.

Prevent monopoly and concentration of wealth

Control UTPControl UTPControl UTPControl UTP

to protect small scale industries to encourage new entrepreneurs to start

industrial units.“ Industrial licensing is an instrument to canalize

the limited resources of an economy in the most productive way for industrialization “

Legislative Frame work for licensingLegislative Frame work for licensingLegislative Frame work for licensingLegislative Frame work for licensing

The legislative frame work for industrial licensing is provided in the Industrial ( development and Regulation) Act 1951

Industrial (Development and Regulation ) Act 1951Industrial (Development and Regulation ) Act 1951Industrial (Development and Regulation ) Act 1951Industrial (Development and Regulation ) Act 1951

Consistent with the industrial policy resolution, the industrial ( Development and regulation) Act 1951

Was passed which came into force on May 8 1952.

Objectives To provide the central govt. with means to

implement their industrial policy. To take necessary steps for the development of

industries. To regulate the pattern and direction of industrial

development. To control the activities of industrial undertakings

in the public interest.

Application of the ACT ( Scope)Application of the ACT ( Scope)Application of the ACT ( Scope)Application of the ACT ( Scope)

The Act applies to the whole of India including Jammu and Kashmir.

Act applies to industrial undertaking manufacturing any of the articles mentioned in the first schedule .

The Act is implemented through the Ministry of Industry.

Provisions of the ActProvisions of the ActProvisions of the ActProvisions of the Act

Classified into three broad categories Preventive ProvisionsCurative Provisions Creative Provisions

1. Preventive Provisions1. Preventive Provisions1. Preventive Provisions1. Preventive Provisions

A) Registration and licensing Section 10 provides that the owner of every

industrial undertaking shall get his undertaking registered with in a specified period.

Licensing is required for following case- Licensing of new undertaking (11) Production of new articles (11A) license for expansion (13)License for shifting location (13) In the year 1991 (July 25 ), registration and

licensing was abolished, except for 18 specified industries.


B) Investigation Section 15 empowers the govt. to cause an

investigation into an industrial undertaking on the happening of –

Deterioration in the quality of product. Rise in the price of article Misutilisation of resources Fall in production


C) Revocation of Registration and license Section 10 empowers the govt. to revoke the

registration when- It was obtained by misrepresentation Registration has become useless or ineffective

2. Curative measures2. Curative measures2. Curative measures2. Curative measures

A) Take Over of management The power of control entrusted to the govt. to

take over of the management of whole or any part of an industrial undertaking which fails to comply any of the directions of Act. (section 18A)

B) Control of Supply and price In order to secure equitable distribution and

availability of any article or class of articles, govt. empowered by the act to control its supply, distribution and price

3. Creative Provisions 3. Creative Provisions 3. Creative Provisions 3. Creative Provisions

A) Development councils Govt. can establish councils for any scheduled

industry or group of scheduled industries consisting of members representing the interests of owners, employees, consumers etc. and persons having special knowledge of industries.

B) Levy and collection of cess Section 9 of the act provides govt. to levy and

collect a cess for purpose of this act on all goods and services of scheduled industry.

3. Creative Provisions 3. Creative Provisions 3. Creative Provisions 3. Creative Provisions

C) Central Advisory council The empowers for the establishment, by the govt.

of central advisory council consisting of representatives of the owners of industrial undertakings, employees, consumers, suppliers, etc. for the purpose of advising govt. on matters concerning the development of the industries.

Foreign Exchange Regulation Act 1973 Foreign Exchange Regulation Act 1973 Foreign Exchange Regulation Act 1973 Foreign Exchange Regulation Act 1973

Objectives To regulate certain payments To regulate dealings in foreign exchange and

securities. To regulate holding of immovable property of the

country. To regulate employment of foreign nationals. to regulate foreign companies.

Foreign Exchange Regulation Act 1973 Foreign Exchange Regulation Act 1973 Foreign Exchange Regulation Act 1973 Foreign Exchange Regulation Act 1973

Provisions Regulation of dealings in foreign exchange Restrictions on payments restrictions on establishment of place of business in India.

restrictions on Immovable property restrictions on import and export of currency.

Foreign Exchange Management Act 1999Foreign Exchange Management Act 1999Foreign Exchange Management Act 1999Foreign Exchange Management Act 1999

There was a lot of demand for a substantial modification of FERA in the light of ongoing economic liberalization and improving foreign exchange position.

Accordingly, a new act the FEMA, 1999 replaced the FERA.

Objectives To facilitate external trade and payments. To promote orderly development and

maintenance of foreign exchange.

Provisions Provisions Provisions Provisions

1. Dealing in Foreign Exchange (Section 3) No person shall deal in any foreign exchange or foreign security

with any person other than authorized person. Make any payment to or for credit of any person

resident outside India. Enter into any financial transaction in India as a

consideration for or in association with acquisition or creation or transfer of a right to acquire any asset outside India by any person.


2. Holding of Foreign Exchange (Section 4) No person, resident in India, shall acquire, hold,

own possess or transfer any foreign exchange foreign security or any immovable property situated outside India, without permission from the RBI

3. Current Account Transaction FEMA permits dealings in foreign exchange

through authorized persons for current account transactions.

4. Capital Account Transaction Any person may sell or draw foreign exchange to

or from an authorized persons for capital account transactions permitted by the RBI in consultation with central govt.


5. Export of Goods and Services Every exporter of goods or services shall furnish

to the RBI details regarding the export value of such goods

6. Realization of Foreign Exchange Where any amount of foreign exchange is due

accrued to any person resident in India, such a person shall take steps to realize such foreign exchange with in specified period of time.


7. Contravention and Penalties Penalty for any kind of contravention under this

act is liable to a penalty up to thrice the amount involved where it is quantifiable or up to 2 lakhs where it is not quantifiable and where such contravention is continuing one, for the penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues.

Tax Legislations

Central Sales Tax Central Sales Tax Central Sales Tax Central Sales Tax

The central sales tax is an indirect tax where the tax is levied in sales which are effected in the course of inter- state trade or commerce.

The act was passed in the year 1956 by the parliament in exercise of the authority conferred on it under the articles 286 and 269 of the constitution of India.

Constitutional Provisions Constitutional Provisions Constitutional Provisions Constitutional Provisions

Following are the provisions were made by the amended article 286

No law of a state shall impose or authorize the imposition of a tax on the sale or purchase of goods if such sale or purchase takes place outside the state.

No law of a state shall impose or authorize the imposition of a tax on such sale or purchase of goods which takes place in the course of import of the goods into or export of the goods out of the territory of India.

Constitutional Provisions Constitutional Provisions Constitutional Provisions Constitutional Provisions

Any law of a state imposing or authorizing to impose a tax on the sale or purchase of goods in the course of inter-state trade or commerce shall be subject to such restrictions, as may be specified by the parliament through legislation.

The parliament may enact proper legislation for determining the place of sale or purchase of goods.

Scope of the Act ( CST Act 1956) Scope of the Act ( CST Act 1956) Scope of the Act ( CST Act 1956) Scope of the Act ( CST Act 1956)

It extends to the while of India. It is divided into 6 chapters and 26 sections It makes provision for single point as well multiple

– point tax. Under this act, the goods have been classified as Declared goods Other goods Every dealer engaged in inter-state trade has to

get himself registered with this act. The tax is levied under this act by the central

govt. but it is collected by state govt.

Scope of the Act ( CST Act 1956) Scope of the Act ( CST Act 1956) Scope of the Act ( CST Act 1956) Scope of the Act ( CST Act 1956)

The act does not provide rules regarding submission of returns, payment of tax, appeals etc.

The central govt. and the state govt. are empowered to frame proper rules and regulations for the implementation of various provisions of this act.

Principles for Determining the Nature of JobPrinciples for Determining the Nature of JobPrinciples for Determining the Nature of JobPrinciples for Determining the Nature of Job

1. Sale or purchase in the course of inter – state trade or commerce ( section – 3)

A sale or purchase of goods shall be deemed to take place in the course of inter-state trade commerce if the sale or purchase.

Occasions the movement of goods from one state to another.

is effected by a transfer of documents of title to the goods during their movement from one state to another.

2. Sale or Purchase of goods inside a State A sale or purchase of goods shall be deemed to

take place inside a state if the goods are specific or ascertained at the time of the contract of sale and are with in the state.

3. Sale or purchase of goods in the course of export

A sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India if

the sale or purchase occasions such export It is effected by the transfer of documents of

title to the goods after the goods have crossed customs frontiers of India

4. Sale for Purchase of goods in the course of Import

The sale or purchase either occasions such import

The sale or purchase is effected by a transfer of documents of title to the goods before the goods have crossed the custom frontiers of India

Exception from CSTException from CSTException from CSTException from CST

Exemption on subsequent sale Subsequent sale to govt. Subsequent sale to registered dealer.

Goods for mining Extraction of ore from the mine. Washing, screening and dressing the oreTransport of the ore from the riverside to the

harbor by means of barges. Blending of ore.


Good for generation or distribution of electricity Battery cells to be used by linesmen to work on

lines during night. Raincoats for the use of linesmen. Soaps, paints, varnishes for the purpose of

cleaning boilers and electrical goods. Good for generation or distribution of electricity Transfer of the goods otherwise than sale


The unit of the buyer is located in any special economic zone.

The dealer purchases the goods for the purpose of manufacture, production, processing, assembling, repairing, reconditioning, re-engineering, packaging.

DeductionsDeductionsDeductionsDeductions

Turnover of goods sold outside the state. Turnover of goods sold in the export. Value of goods transferred to other places of business.

Turnover of goods unconditionally exempt under a state sales tax act

Central Excise DutyCentral Excise DutyCentral Excise DutyCentral Excise Duty

The Supreme Court has defined-“ Excise duty is a levied necessarily on those dutiable goods which are produced or manufactured in India and it has no relationship with the sale of these goods.”

“ Excise duty is a duty on the production or manufacture of goods with in India. The duty of excise is levied on manufacturer or producer in respect of the commodities produced or manufactured by him.”

Laws Relating to Excise DutyLaws Relating to Excise DutyLaws Relating to Excise DutyLaws Relating to Excise Duty

Central Excise Act 1944(CEA) Central Excise Rules 1944 (CER) Central Excise Tariff Act 1985 (CETA) Central Excise (valuation ) Rules, 2000

Scope of the excise DutyScope of the excise DutyScope of the excise DutyScope of the excise Duty

Excise duty is levied on goods Excise duty is levied on the production or

manufacture of goods. The burden of this tax falls on the consumers. Excise duty is levied on the dutiable value

calculated by general or special method. Excise duty is levied through out India in the

same form. Excise duty is imposed on manufactured goods

only once except when these goods become the raw material for some other goods.

Excise duty law requires special records to be kept for removing the goods from the place pf production, stock, or place of removal.

Basis of Levy Of Excise DutyBasis of Levy Of Excise DutyBasis of Levy Of Excise DutyBasis of Levy Of Excise Duty

1. Specific Duty It is the duty payable on the basis of certain fixed

unit like weight, length, volume, etc.

2. Tariff Value T.V. is a notional value fixed by the govt. under

the section3(2) of CEA for the purpose of calculating the duty payable.

Govt. can fix different tariff values for different classes of same excisable goods or Manufactured by different producers or sold to different classes of buyrers.


3. Duty based on MRP Section 4A of the CEA empowers the govt. to

specify goods on which duty will be payable based on MRP printed on carton.

The goods should be covered under provisions of standards of weights and measures Act 1976.

A reasonable deduction is allowed from such retail price to provide for excise duty.


4. Duty based on production capacity Section 3A of the CEA Act gives power to the

govt. to notify certain goods where the manufacturer will have to pay duty on the basis of production capacity.

Commission of Central Excise will determine annual capacity of production of the factory.

5. Ad Valorem duty Duty on goods are payable on the basis of value

of goods. The assessable value (AV) is arrived at on the

basis of section 4 of CEA and duty is payable on the basis of percentage of such value at the rates specified in CETA 1985


6. Levy of Slabs Under this system the excise duty is levied on the

basis of different slabs based on various parameters like turnover, production capacity etc.

SSI units are taxed on the basis of turnover

6. Compound levy Scheme Meant for the small scale decentralized sector

e.g. embroidery, marble, stainless steel etc. Duty for a specified period is fixed on the basis of

the number and type of machines. Manufacturer has to observe day today excise

formalities regarding maintenance of account

Exemptions from Central Excise DutyExemptions from Central Excise DutyExemptions from Central Excise DutyExemptions from Central Excise Duty

Section 5A of the CEA 1944 empowers the central govt. to issue notifications exempting goods from the payment of central excise duties. They are –

small scale industry ExemptionJob work ExemptionCaptive Consumption Goods produced without the use of power. Cottage and village industry products Goods produced at exhibitions and trade fairs.Goods produced by educational, technical and

research institutions.

Exemptions from Central Excise DutyExemptions from Central Excise DutyExemptions from Central Excise DutyExemptions from Central Excise Duty

Goods produced in govt. factories, mines, prisons and defense production.

Solar and Natural energy.Goods produced by free trade zones and 100%

export oriented units.Capital goods meant for use in export goods.

Kinds of Excise DutyKinds of Excise DutyKinds of Excise DutyKinds of Excise Duty

1. Basic Excise Duty This is called as CENVAT This duty id levied on the hoods included in the

first schedule of the CETA.

2. Special Excise Duty Goods included in the II schedule of the CETA are

subjected to SED. The general rate of this duty is 8% It includes items like motor cars, polyester

filament yarn, tyres, soft drinks etc.


3. National calamity Contingent Duty NCCD has been imposed by the Finance Act 2001 This duty shall be in addition to the any other

duties of excise chargeable on goods. This duty is imposed on Pan masala @23%,

Cigarettes @ Rs 20 to 235 per thousand, bidis Rs. 1 to Rs.2 per thousand and tobacco products @ 105

Finance Act 2003 included other goods like polyester filament yarn, motor cars, multi utility vehicles and two wheelers @1% and domestic crude oil @ Rs 50 per metric tonne.


4.Special Additional Duty This duty shall be in addition to any other duties

of excise chargeable on such goods under the section CEA 1944 or any other law for the time being in force.

Motor spirit Rs & per liter, high speed diesel oil re. 1 per liter.

5. Educational Cess The Finance Act 2004 imposed an education cess

on dutiable goods manufactured in India @ 2% on the aggregate duties of excise chargeable on such goods.

CENVATCENVATCENVATCENVAT

The Finance Act 200 had introduced the new CENVAT scheme replacing the MODVAT scheme from 1/4/2000.

It is tax on value addition. CENVAT is basically an input duty relief scheme

under central excise designed to reimburse the user manufacturer with the duty paid on the input which ha has absorbed as part of purchase price when buying the same for producing finished products.

HighlightsHighlightsHighlightsHighlights

The CENVAT scheme is principally based on system of granting credit of duty paid on inputs.

under CENVAT, a manufacturer has to pay duty as per normal procedure on the basis of Assessable value.

He gets credit of duty paid on inputs. The CENVAT credit system is available on capital

goods used in the manufacture of final goods. The term capital goods does not includes office

equipments.

ScopeScopeScopeScope

The CENVAT covers all inputs except High Speed Diesel oil and Motor Spirit

CENVAT credit also coves inputs used in the manufacture of capital goods.

Conditions for Availing the CreditConditions for Availing the CreditConditions for Availing the CreditConditions for Availing the Credit

CENVAT scheme is applicable to all finished excisable goods.

The conversion of inputs into final products should involve the element of manufacture.

Credit is allowed for specified duties paid on inputs or capital goods.

The use of inputs must be in or in relation to the manufacture.

Income TaxIncome TaxIncome TaxIncome Tax

Income tax is very important direct tax. Every person, whose taxable income for the

previous financial year exceeds the minimum taxable limit is liable to pay the central govt. income tax during the current financial year on the income of the previous year, at the rates face during the current financial year.

In India, income tax was introduced for the first time in 1806, by Sir. James wilson, in order to meet the losses sustained by the govt.

1886 Income tax Act was passed. Final income tax Act was passed in the year 1961.

Basis for Charge of Income taxBasis for Charge of Income taxBasis for Charge of Income taxBasis for Charge of Income tax

Income tax is an annual tax on income. Income of previous year is taxable in the next

following assessment year at the rate or rates applicable to that assessment year.

Tax rates are fixed by the annual Finance Act. Tax is charged on every person as defined in

section 2 (31). The tax is charged on the total income of every

person computed in accordance with ACT.

Basis for Charge of Income taxBasis for Charge of Income taxBasis for Charge of Income taxBasis for Charge of Income tax

The income tax is computed on the basis of th residential status of the assessee in the manner provided hereunder and is classified in to the following heads.

Income from salaries. Income from House Property. Profits of business or profession. Capital gains Income from other sources

Rates of Tax for an Individual Rates of Tax for an Individual Rates of Tax for an Individual Rates of Tax for an Individual

Women

On Rs. 1,35, 000 Nil

Next on Rs 15000 10%

Next on Rs 1.00,000 20%

Next balance 30%


Senior Citizen

On Rs. 1,85, 000 Nil


Next balance 30%


Other Individuals

On Rs. 1,00, 000 Nil


Next on Rs 1.00,000 20%

Next balance 30%


Surcharge If total income exceeds Rs. 10,00,000 @10%

education cess. On the amount of income tax surcharge Rs. 2%

Problems in Administration of Income Tax in India

1. Large Non-Monetized Sector 1. Large Non-Monetized Sector 1. Large Non-Monetized Sector 1. Large Non-Monetized Sector

There is a large non-monetized sector in the developing country like India.

It is very difficult to assess the income originating in this sector.

Even highly skilled tax administrator have found it difficult to evaluate the real income of farmers and other self-employed people, and including the value of home produced and consumed food in the taxable income of the farmer.

2. Less Literacy Rate 2. Less Literacy Rate 2. Less Literacy Rate 2. Less Literacy Rate

The majority of the population in the India is illiterate.

Most of the farmers, wage earners, small shop keepers, craftsmen, etc. cannot fill out even the simplest income tax return forms.

2. non-voluntary compliance 2. non-voluntary compliance 2. non-voluntary compliance 2. non-voluntary compliance

Key to successful income tax is voluntary compliance on the part of tax payers.

This condition is less in India. Large number of businessmen do not maintain

books properly. While fixed income groups pay income tax

regularly and a large number of prosperous businessmen pay only a very small part of their income.

4. Anonymity in the Ownership of Wealth 4. Anonymity in the Ownership of Wealth 4. Anonymity in the Ownership of Wealth 4. Anonymity in the Ownership of Wealth

Anonymity in the ownership of wealth is another serious problem.

This mat be in the form of ‘bearer’ shares in the case of companies or the system of ‘benami’ in India.

This makes it difficult to assess the income from capital or wealth in an effective way.

5. No Single Comprehensive Tax 5. No Single Comprehensive Tax 5. No Single Comprehensive Tax 5. No Single Comprehensive Tax

In India there is no single comprehensive tax system.

It follows “cedular” system of income taxation. This system has imposes separate taxes on

different sources of income. It leaves many important sources entirely

untaxed.

6. Inefficient and Corrupt Administration6. Inefficient and Corrupt Administration6. Inefficient and Corrupt Administration6. Inefficient and Corrupt Administration

As far as the tax enforcement aspect is concerned, perhaps the most serious criticism is the inefficient and corrupt administration in developing countries.

As a result, taxes are not strictly enforced resulting in a loss of revenue to the govt.

7. Inflexible 7. Inflexible 7. Inflexible 7. Inflexible

Another defect that characterizes the Indian tax system is its inflexibility.

It depends mostly on urban incomes and leaves out almost completely agriculture incomes from the purview of direct taxes.

8. Inter – sectoral Imbalances in the Tax structure 8. Inter – sectoral Imbalances in the Tax structure 8. Inter – sectoral Imbalances in the Tax structure 8. Inter – sectoral Imbalances in the Tax structure

There are inter-sectoral imbalances in India's tax structure as agricultural incomes are virtually tax free.

After the land reforms were carried out and new technology was introduced in agriculture, a new class of large farmers emerged in India.

Income of these farmers are now fairly high and yet they are tax free.

These developments during the past four decades have created inter-sectoral imbalances in the tax structure.

9. Large Evasion 9. Large Evasion 9. Large Evasion 9. Large Evasion

On top of inflexibility of the tax system, is its faulty structure, resulting in large scale evasion of tax.

Following causes are responsible for large evasion of taxes.

corrupt business practicesIneffective tax enforcement. undue curbs on business expenses on

entertainment, advertisement, travel etc.

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Economic Legislations

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