Kautilya has also described in great detail the system of tax administration in the Mauryan Empire. It is remarkable that the present day tax system is in many ways similar to the system of taxation in vogue about 2300 years ago. According to the Arthasastra, each tax was specific and there was no scope for arbitratiness.


Tax can be defined in very simple words as the government’s revenue or source of income. The money collected under the taxation system is put into use for the country’s development through several projects and schemes. For Example – When a producer shifts his tax burden on consumer it is forward shifting. But, if the retailer pressurizes the producer to cut down prices rather than charging higher prices from consumers it is called backward shifting of tax. Fiscal drag is a concept where inflation and earnings growth may push more tax payers into higher tax brackets.

Buy the Invest 4G plan today to meet your the term tax incidence refers to and life goals faster. With a simple assessment of your income and some basic tax rules; planning your taxes can ensure your overall financial security. However, it is Kautilya’s Arthasastra, which deals with the system of taxation in a real elaborate and planned manner.


Taxation may be moved from one individual to another via indirect taxes. The taxation system in India traces its roots to ancient texts like Manusmriti and Arthashastra. As prescribed by these texts, artisans, farmers, and traders hundreds of years ago would pay taxes in the form of silver, gold and agricultural produces.

By introducing a tax, the federal government primarily creates a wedge between the price paid by consumers Pc and the worth received by producers Pp. In different phrases, of the whole price paid by consumers, part is retained by the sellers and part is paid to the government within the form of a tax. The new market price is Pc, however sellers receive only Pp per unit sold, as they pay Pc-Pp to the government. For example, United States Social Security payroll taxes are paid half by the employee and half by the employer. However, some economists suppose that the worker bears almost the complete burden of the tax because the employer passes the tax on in the type of lower wages. The tax incidence is thus said to fall on the worker.However, it may equally well be argued that in some cases the incidence of the tax falls on the employer.

The demand curve and shifted provide curve create a brand new equilibrium, which is burdened by the tax. The new equilibrium represents the price that consumers can pay for a given quantity of fine prolonged by the part of the tax (p0+kt), k∈ . In economics, tax incidence or tax burden is the impact of a selected tax on the distribution of financial welfare. The reason why Kautilya gave so much importance to public finance and the taxation system in the Arthasastra is not far to seek. According to him, the power of the government depended upon the strength of its treasury. He states – “From the treasury, comes the power of the government, and the Earth whose ornament is the treasury, is acquired by means of the Treasury and Army”.

An Overview Of The Positive And Negative Qualities Of Indirect Tax

Therefore, fiscal drag has the effect of raising government tax revenue without explicitly raising tax rates. When the demand is inelastic, customers aren’t very responsive to cost modifications, and the quantity demanded reduces solely modestly when the tax is launched. In the case of smoking, the demand is inelastic because consumers are hooked on the product. Elasticity of the curves continues to be the important factor that predicts the size of the tax burden levied on customers and producers.

Extendicare Announces 2022 Fourth Quarter and Year End Results – InvestorsObserver

Extendicare Announces 2022 Fourth Quarter and Year End Results.

Posted: Thu, 02 Mar 2023 22:01:46 GMT [source]

The evaluation, or manner, of how a tax burden is divided between shoppers and producers is calledtax incidence. Tax incidence is determined by the price elasticities of supply and demand. If shoppers drive the same variety of miles regardless of fuel prices, then a tax on gasoline will be paid for by customers and never oil companies .

What is systemically important financial institutions?

Health and Education cess @ 4% shall also be paid on the amount of income tax plus surcharge . Products and services become more costly due to the inclusion of taxes in the cost of products and services. In India, direct taxes are handled by the Central Board , part of the Department of Revenue. While the CBIC is in charge of administering Indirect Taxes, the CBIC is not a governmental agency. Now that we have covered the fundamentals of direct and indirect taxation let us look at the differences between the two.

Make correction in the incidence and impact of tax concept in your article.. If, in contrast to the earlier example, the buyer is inelastic, they will demand the same amount no matter the price. Because the producer is elastic, the producer is very sensitive to cost. In general, the steeper the marginal cost curve, the smaller the noticed change in output after taxation. As mentioned earlier, an ROR is subject to tax on his global income in India.

Government decided that cadre control for Group ‘C’ and ‘D’ posts would be with Chief Commissioner and with CBDT for Group ‘A’ and ‘B’posts. Directorate of Inspection , Directorate of Inspection and Directorate of Inspection created. A Special Cell within the Directorate of Inspection created to oversee the cases of big industrial houses. Report of rationalisation and simplification of tax structure received. Intelligence Wing created and placed under the charge of Directorate of Inspection . New system for evaluation of work done by Income-tax Officers introduced.

How Does Price Elasticity Affect Supply?

Centralized Processing Centre was setup in Bengaluru for bulk processing of e-filed and paper returns. The Centre operates without any interface with taxpayers in a jurisdiction – free manner. The developing nature of the economy of the country brought with it both steep rates of taxes and black incomes. In 1965, the Voluntary Disclosure Scheme was brought in followed by the 1975 Disclosure Scheme.

Attorneys debrief capital gains income tax state Supreme Court oral … – Washington Policy

Attorneys debrief capital gains income tax state Supreme Court oral ….

Posted: Thu, 02 Feb 2023 08:00:00 GMT [source]

If the proceeds of the are utilized in a way that advantages producers and consumers, then homeowners endure the tax burden. These are class distinctions regarding the distribution of prices and are not addressed in present tax incidence models. The US military offers major profit to house owners who produce offshore.

Why should you do Tax Planning?

Rs. 1400 Presumptive Taxation scheme introduced as a measure to widen tax base. L.K. Jha Committee set up for simplification and rationalisation of tax laws. Taxation Laws Act 1984 passed to streamline procedures in the interest of better work management; avoid inconvenience to tax payers; reduce litigation; remove anomalies and rationalise some provisions. A new directorate designated as Directorate of Inspection (Publication & Public Relations) created out of the Directorate of Inspection (RS&P). A new directorate known as Directorate of Inspection came into existence by bifurcating the functions of Directorate of Inspection .

  • Tax incidence is related to the price elasticity of supply and demand, and when supply is more elastic than demand, the tax burden falls on the buyers.
  • This is as a result of each the price elasticity of demand and value elasticity of supply impact upon whom the incidence of the tax falls.
  • Kautilya has also described in great detail the system of tax administration in the Mauryan Empire.
  • Department, burdened with the administration of several other Acts like W.T., G.T., E.D., etc., had expanded to such an extent that it was considered necessary to put it under a separate Board.
  • The more elastic the demand curve, the extra probably that customers will cut back quantity instead of paying higher costs.
  • When the price of the good or service highly impacts the level of demand, the demand is considered highly elastic.

Taking clues from these texts and with some added tweaks, the basis for the modern tax system in India was laid by the British when Sir James Wilson introduced income tax in 1860. At the time of independence, the newly-formed Indian Government cemented the system to catalyze the economic progress of the country and also to eradicate income and wealth disparity. The more elastic the demand and supply curves, the lower the tax revenue. If the supply was elastic and sellers had the possibility of reorganizing their companies to avoid supplying the taxed good, the tax burden on the sellers can be a lot smaller. The tax would end in a a lot lower amount sold as an alternative of lower costs obtained. An instance of the perfect elastic supply curve is the market of the capital for small nations or companies.

What is the difference between tax burden and tax incidence?

If an excise tax is imposed on producers of the particular good or service, the supply curve shifts to the left because of the increase of marginal value. The tax measurement predicts the new level of amount provided, which is reduced compared to the initial level. In Figure 1 – a requirement curve is added into this occasion of competitive market. However, the true burden of the tax cannot be properly assessed with out understanding the use of the tax revenues. If the tax proceeds are employed in a way that benefits house owners more than producers and consumers then the burden of the tax will fall on producers and shoppers.

The term “Incidence of tax” refers to the final resting place of the tax burden, which is the result of the tax burden. While the impact is a type of initial burden , the incidence refers to the point at which the tax burden is actually settled . For example, if an excise duty is imposed on a good, such as alcohol, the producer of the alcohol will be responsible for the tax burden resulting from the duty. As a result, the producer of alcoholic beverages will be required to pay the tax to the government in the form of excise duty in the first instance. However, he will be able to shift the burden of the excise tax to the final consumer in the future.


An individuality on whom the tax is levied does not need to bear the true measurement of the tax. For the instance of this distinction, assume a firm, that contains employer and staff. Tax incidence is said to “fall” upon the group that finally bears the burden of, or finally suffers a loss from, the tax. An instance of excellent inelastic supply curve is unimproved land ( it’s a need to tell apart the land and the improvements, that could be utilized) or crude oil. In Figure 1, the provision is inelastic and the demand is elastic, corresponding to in the example of beachfront hotels.

However, an indirect tax is tacked onto the cost of products and services rather than levied separately. Also covered in depth in this unit is a better understanding of how the final tax burden is distributed between buyers and sellers. In order to better understand this, the simple price-quantity equilibrium analysis with the demand supply framework is used as a framework.

total income

He, however, cautioned the king against excessive taxation and stated that both extremes should be avoided namely either complete absence of taxes or exorbitant taxation. According to him, the king should arrange the collection of taxes in such a manner that the subjects did not feel the pinch of paying taxes. He laid down that traders and artisans should pay 1/5th of their profits in silver and gold, while the agriculturists were to pay 1/6th, 1/8th and 1/10th of their produce depending upon their circumstances. The detailed analysis given by Manu on the subject clearly shows the existence of a well-planned taxation system, even in ancient times. Not only this, taxes were also levied on various classes of people like actors, dancers, singers and even dancing girls.

Leave a Reply

Your email address will not be published.