INTRODUCTION

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 INTRODUCTION

1.1              BACKGROUND OF THE STUDY

Taxation is a major instrument for the conduct of public policy. This is true for both developed

and developing countries. Taxation is known to accomplish a number of objectives revenue

generation for government, economic stabilization and income re-distribution. Taxation as an

instrument of public policy is essentially concerned with the manipulation of financial operations of

both the government anti private sectors with a view of furthering certain economic objectives.

In these economic objectives includes the attainment of appreciable level of full employment,

avoidance of excessive inflation, achievement of satisfactory balance of payment position.

Appreciable increase in the national income and a reduction of extreme inequality among the citizens,

provision of other essential necessities of life like water, school building of bridges roads and others.

The question now arises, How does the finding of these activities come about? The

government can only discharge these duties by generating enough revenue to provide enough finance

for the accomplishment of these tasks ahead and the Board of Internal Revenue is by law charged.

The government to the individual and payable to the economic and social responsibilities

define taxation as a compulsory levy. In Simon’s income tax (1852) Lord Maccnaghten quoted “

Income tax is a on income. Its not meant to be tax on anything else”.  Dalton (1954:23) defined tax as

a compulsory contribution imposed by a public authority irrespective of service rendered in return.

Income tax law and practice by Njokamma. CA. Defined income tax as a creative of statute. In

interpreting its provisions. “ No equity, no intendment” or anything else should be implied. The clean

terms of the law should be applied but no necessarily restricted against the revenue.

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 Nevertheless tax is not the only sources of government revenue other sources include.

                  Fines and fees

                  Motor licensing fees

                  Rent on government quotas

                  Interest and depayments

                  Dividends and Royalties on government

                  Share holdings

                  Miscellaneous State share of federal government disbursement.

                  Loans and grants

                  School fees

                  Hospital fees

Revenue from government parastatals likes the water co- operation department.

The private sector is not left out in the fund generation do their own fund comes inform of

borrowing private savings etc

The absence of well-organized and locally controlled money markets for borrowing has faced

private sectors in most developing countries rely primarily on fiscal measures to mobilize domestic

monetary resources for fund generation. For instance if profits of taxation, the marginal efficiency of

investment will decline and consequently a fall in investment is observed. On the other hand if profit

of investment are increased through low tax rate the marginal efficiency of investment will in

investment is observed.

However Duke Man (1962 P .462) said that for an effective tax system that encourages

investment, has to some extent be based on high rates, a fact peculiar with the paradox of investment

stimulating taxation, and as well discrimination, so long as it is significantly qualitative and

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psychologically substantial. This suggestion may not augur well for investment activity where

retained profits and savings form the buck of capital formation.

Realizing the importance to finance as the train wires of economic growth the government

initiates financial policies through annual budgets and tax laws to fund and provide necessary

extension services for these business enterprises and also through several government financial policy,

ensures adequate financing of small scale enterprise.

We are now convinced that of all these source of revenue by government that tax contributes

the largest proportion. With charges in these considerations above attention have been focused on the

fiscal policy best suited to the economic development of the country. As part of the search for

desirable fiscal policies high consideration is placed on the value of goods and services payable by the

final consumers. The collections of this tax are accountable to the federal government by the federal

wand Revenue, while a reasonable percentage is given to the state where VAT is collected from.

Nevertheless the implementation of various government measures the their effects are most

times, at variance with the objectives of government. Some of the revenue collection agencies are

either ill equipped to carry out their functions effectively or equipped with personal of dubious

character who trust laudable objectives of the government. Most tax papers don’t pay willingly, some

take laws into their hands to either evade or avoid tax wile others collide with some tax official as well

as employ the services of tax experts to explore the tax loophole. As a result of such ill activities

towards taxation there is always a short fall in the government-projected revenue.

In view of the importance to taxation as a principle source to government funding as well as a

powerful instrument in the conduct of public policies. This study is aimed at exploring all avenues of

tax collection in Enugu State and the performance of the Enugu State Board of Internal Revenue to

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keep the flag flying in support of the topic to the study that taxation is a major source of government

funding.

1.2              STATEMENT OF THE PROBLEM

Tax constitutes the greater percentage of internally generated revenue in Enugu State and as

well the major source of fund for the government financing its activities,. Tax however has its

fundamental problems in the area of Administration and management.

There is deficit in planning, control and Adequate information flow of Tax collection

generally. Since the government financial policy and objectives is to ensure adequate fund and

conducive environment for the people’s satisfaction through progressive taxation and other fiscal

measures designed to end the rapid growth and development of the society for the benefit of the

citizenry.

It is therefore necessary that these avenues of fund are solidified. But on the other way round

the implementation of the government taxation policy and the realization of the taxation goal most a

times run at variance with the policy outlined in the annual budget as well as the tax laws provisions.

Many individuals as well as organization see taxation policy as being harsh and unfavourable. They

argue that while few enterprises especially large company continues to benefit from the government

support through grants, Subsidies and other tax incentives. Others find the policies unbearable as a

result any little opportunity by such people to evade or avoid tax is highly utilized.

The results of all these tax evasion and avoidance are that less revenue that envisage is

collected through tax by the government and thereby less social amentias than proposed are carried

out.

These problem will be solved as soon as an efficient machinery is set in motion.

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1.3              PURPOSE/OBJECTIVES OF THE STUDY.

The objectives of the study is finding way of making the tax system effective and putting up

measure that will help the government realize adequate fund for its developmental activities.

Other objectives are:

1.       To discuss and analyze the taxes being administered and Eungu state.

2.       To ascertain the total value of taxes collected during the period year by year.

3.         To determine other sources from which the Enugu State Government can generate more tax

revenue.

4.        To ascertain other sources of the government revenue improve on them.

5.          To make suggestions on ways of increasing the total revenue of the state government both tax

and other sources of revenue to the Government.

To really achieve these objectives efforts will be made to:

1.        Identify all the problems militating against effective tax assessment activities.

2.        Analyze the problems and execute the suggested solutions

3.          Suggest implementation strategies with a view to assisting the management in carrying out

government policies and programmes.

4.        Bring the problem to the focal eyes of the department and government.

5.          Sensitizes the government and create the awareness on the people with abysmal attitude

towards tax payment and its consequence on the economic and social development of the

state.

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1.5       SIGNIFICANCE OF THE STUDY

The study will help to evaluate the tax revenue generated and assess the tax collection

machinery set in motion in Enugu State. It will also help to evaluate the tax and the government is

exploiting other revenue source available to the state and how these source.

This study if properly utilized will enable the Board of Internal Revenue and the State

Government to know the problems effecting tax assessment and collection in the state.

The study will also reveal how far the tax policies in Enugu State are being implemented

furthermore strategies on improving on the revenues generation has mapped out for the provision of

infrastructure.  As a result of this, there will be high standard of living for the tax papers of the state.

Finally it is meant to enlighten the citizen of the state to know the objectives of tax and

thereby reducing tax evasion and avoidance.

1.7              SCOPE OF THE STUDY

This research work is supposed to have covered the tax administration and its revenue

generation system and the comparison with other sources of government revenue. Some tax

administrated by the Federal Government like Company income tax, petroleum profit tax, capital gain

tax, capital transfer tax could have been involved in this research.

Due to the limit time constraint, shortage of information supply and financial constraints, the

study cannot be extended to these major parts and has therefore been limited to the administration of

tax as applicable in Enugu State Government.

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1.8       HISTORICAL BACKGROUND OF BOARD OF INTERNAL

REVENUE ENUGU STATE.

The present day Enugu State Board of Internal Revenue would like most government agencies

traced its orgin to when the colonialist established their government. The needs for government to

generate revenue to enable her execute her programmes brought about the Division of the Ministry the

Independence in 1060. And because of the expending responsibility, that the Board of Internal

Revenue was established as an autonomous government agency, charged with the sole responsibility

of the tax assessment and collection within their jurisdiction. Therefore the present day Enugu State

Board of Internal Revenue has metamorphosed through various governments such as, East Central

State, Anambra State Board of Internal Revenue now the most prominent and the highest revenue

generator of all the extra ministerial departments in Enugu State.

The government of any nation, State or local government formulated and implements policies

for the welfare of the populace. The government at any level has various organs through which it

executes these policies so formulated for the interest of the Board of internal Revenue and of which

the government has charged with assessing collecting and accounting for all taxes collected within this

state.

The present day Enugu State Board of Internal Revenue has only (2) two zones as against (3)

three zones before the creation of Ebony state. These tow zones are 1. Enugu Zone comprising of

eighteen Tax offices and (18) motor licensing offices (2) Nsukka Zone comprises of (12) twelve Tax

offices and motor license offices.

All these tax and motor licensing office has their protem headquarters at the quarters in Enugu

State. The two zones has their zonal tax authorities charged with collection and coordinating all tax

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activities in such zones. At the end to the every month these zones are duty bound to render their

monthly return to tax collection for the month.

At the end of every month or on a quarter month basis the statistic department called the

planning. Research and statistics section with collect, summarize and analyze these return of collected

and come out with a wide chart that will bear all the monthly tax collection and t4h total figure for the

year ended 19… This chart will be carefully prepared that at a glance one will see the total amount of

tax collection for every fiscal year.

1.9       DEFINITION OF TERMS

Some of the terms used during this research, which have special application to study, are

defined:

          Revenue: This is the gross receipt or receivable of a governmental unit derived from taxes,

custom and other main sources of government revenue but excluding appropriation and

allotment from the consolidated Revenue fund (CRF).

          Tax: The Oxford Advanced Learners Dictionary of current English DEFINES tax as “(sum

of money purchase etc) to the government for public purpose”.

Tax can also be defined as a compulsory levy by natural or cooperate, payable

        Tax Assessment: The calculation the tax due to the paid by an individual.

        Tax Collection: Staff of the Board charged with collection of taxes from the public.

          Zonal Tax Authorities: These are senior tax officer charged with assessing and collecting

of tax within their zone.

          Tax Law: These are laws made by the government prone to review as well giving the

guidelines and draft on how and paid. These laws are standard guiding all the tax offices in the

federation. Examples are ITMA 1961 Income Tax management Act 1991 etc.

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 Income management Act  (ITMA): These are laws committee guiding the collection

Sources of Government Revenue: 9 Sources

The following points highlight the nine main sources of government revenue. The sources are: 1.

Tax 2. Rates 3. Fees 4. Licence Fee 5. Surplus of the public sector units 6. Fine and penalties 7.

Gifts and grants 8. Printing of paper money 9. Borrowings.

Source # 1. Tax:

A tax is a compulsory levy imposed by a public authority against which tax payers cannot claim

anything. It is not imposed as a penalty for only legal offence. The essence of a tax, as

distinguished from other charges by the government, is the absence of a direct quid pro quo (i.e.,

exchange of favour) between the tax payer and the public authority.

Tax has three important features:

(i) It is a compulsory contribution, to the state from the citizen. Anyone refusing to pay tax is

punished under law. Nobody can object to taxation on the ground that he is not getting the

benefit of certain state services,

(ii) It is the personal obligation of the individual to pay taxes under all circumstances,

(iii) There is no direct relationship between benefit and tax payment.

Source # 2. Rates:

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Rates refer to local taxation, i.e., taxation levied by (or for) local rather than central government.

Normally rates are proportional to the estimated rentable value of business and domestic

properties. Rates are often criticised as being unrelated to income

Source # 3. Fees

Fee is a payment to defray the cost of each recurring service undertaken by the government,

primarily in the public interest.

Source # 4. Licence fee:

A licence fee is paid in those instances in which the government authority is invoked simply to

confer a permission or a privilege.

Source # 5. Surplus of the public sector units:

The government acts like a business- person and the public acts like its customers. The

government may either sell goods or render services like train, city bus, electricity, transport,

posts and telegraphs, water supply, etc. The government also earns revenue from the production

of commodities like steel, oil, life-saving drugs, etc.

Source # 6. Fine and penalties:

They are the charges imposed on persons as a punishment for contravention of a law. The main

purpose of these is not to raise revenue from the public but to force them to follow law and order

of the country.

Source # 7. Gifts and grants:

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 Gifts are voluntary contribution from private individuals or non-government donors to the

government fund for specific purposes such as relief fund, defence fund during war or an

emergency. However, this source provides a small portion of government revenue.

Source # 8. Printing of paper money:

It is another source of revenue of the government. It is a method of creating extra resources. This

method is normally avoided because if once this method of financing is started, it becomes

difficult to stop it.

Source # 9. Borrowings:

Borrowings from the public is another source of government revenue. It includes loans from the

public in the form of deposits, bonds, etc. and also from the foreign agencies and organizations.

1. PEOPLE’S VIEW ABOUT TAXATION

A tax formula at least contains three elements

1. The definition of the base

2. The rat structure and

3. The identification of the legal taxpayer

The base (of income) multiplied by the appropriate rage gives a product called the tax liability,

which is an obligation that the taxpayer must meet at specific areas. The rate structure is

dependents on the base. 

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 Adams smith, in his “ wealth of Nations” 1976 set out the four principles of taxation which

emphasized:

1. Equity

2. Certainty

3. Convince

4. Economy.

 Reference to Equity, Smith said than an individual ought to be taxed in proportion to the

revenue he enjoys under the protection of the state. 

On certainty, he argued that the rate of taxation should be certain but not arbitrary, the time of

payment, the manner of payment the quantity paid all ought to be very clear to the taxpayers

concerned. 

Regarding convince, Smith maintained that the method of collection should be convince to both

the collector and the contributor. 

In his last principle, on Economy, he said that a tax system must adequate precaution to ensure

that it does not make the economic situation worse off. It must take cognizance of the citizen as

an investor, consumer and saver and must not affect adversely the economic contributions of the

person taxed. Neither should it lead to disincentive of effort nor undesirable features like

inflations. 

Following the dynamic nature of our economic, social and political development since Smith

days, his guidelines are no longer adequate. New days, complex methods of measuring economic

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 strength have evolved, the concept of just ice have charged pro-founding, taxation has won

democratic control, tax administration has vastly improved and economic system have become

enormously more complex and independent. The sense of social responsibility has changed and

with it, the role of government here changed and increased. In respect of these changes, the

functions of taxation have been broadened and recast by modern economists. The canons

instance with modern circumstances may be re- examined under the following four major

headings:

1. Social Justice

2. Consistency with economic growth

3. Ease of administration

4. Revenue adequacy

Objectives of Taxation

Although the tax structure in the various developing countries differs widely, the objectives of

taxation in these countries are virtually the same. Unfortunately however, the objectives of the

tax system and the relationship between these objectives are hardly clearly stated (Cutt, 1969).

This does not only makes tax administration difficult but also give room for tax evasion with the

attendant effects on economic development. Cutt (1969) therefore, states that a brief discussion

on the objectives of taxation as outlined below would be a gainful exercise.

(A). Rising of Revenue: The classical function of a tax system is the raising of the revenue

required to meet government expenditure. This income is required to meet the expenditure which

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are either the provision of goods and services which members of the public cannot provide such

as defense, law and order to the provision of goods and services which the federal and state

governments feel are better provided by itself such as health services and education.

(B) Wealth Redistribution: In modern times, great emphasis has come to be placed on the

objective of redistribution of wealth. This has two quite distinct forms. The first is the doctrine

that taxation should be based on ability to pay and is summarized by the saying that “the greatest

burdens should be borne by the broadest backs.” The second form International Journal of Public

Administration and Management Research (IJPAMR), Vol. 2, No 2, March., 2014 Website:

http://www.rcmss.com. ISSN: 2350-2231 (Online) ISSN: 2346-7215 (Print) The Impact of

Taxation on Revenue Generation in Nigeria: A study of Federal Capital Territory and Selected

States 29 Research Centre for Management and Social Studies presupposes that the present

distribution is unjust and concludes that this should therefore be undone. This second principle

sees confiscation as a legitimate objective of taxation.

(C) Economic Price Stability: It has been said that the most fundamental reason a

government has for taxing its citizens is to provide a reasonable degree of price stability within

the nation (Summerfield, et al, 1980). Most spending by the public and private sectors without

taxes generates high demand, which is inflationary. In such a situation, the basic function of

taxation is to reduce private expenditure in order to allow government to spend without causing

inflation. Thus, taxation is basically a deflationary measure. On the other hand, when aggregate

demand is lower than the deserved level, government has two options which are to increase

government spending with increasing taxes or to reduce taxes while leaving government

spending stable.

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(D)Economic Growth and Development: The overall control or management of the

economy rests on the central government and taxation plays an important role in this direction. In

addition to maintaining reasonable price stability, governments are determined to promote the

near-full employment of all the resources of the country (including human resources i.e. labour)

and ensure a satisfactory rate of economic growth. Economic growth and development

programmes are geared towards raising the standard of living of the masses of a country through

the improvement of their economic and social conditions. Taxation in one way discourages,

postpones or reduces consumption and encourages saving for private investments. This is only

possible when the basic necessities of life including security, law and order, education and

communication are provided by government, hence, the national development plans of

developing countries are considered to be important.

This objective will be of great assistance to Nigeria where there is mass unemployment of labour

force and economic resources. According to Soyode and Kajola (2006) the responsibilities or

objectives of government using taxation are as follows:-

(a) Revenue Generation: The primary objective of a modern tax system is generation of

revenue to help the government to finance ever-increasing public sector expenditure.

(b) Provision of Merit Goods: An important objective of tax system is the promotion of social,

economic and good governance through provision of merit goods. Examples of merit goods are

health and education. These must not be left entirely to private hands though, private

participation should be encouraged. Private enterprises will push the cost of providing education

and health services beyond the reach of common people if left entirely in their hands.

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(c)Provision of Public Goods: Revenue generated from tax can be used to provide commonly

consumed goods and services for which an individual cannot be levied the cost of the goods or a

service consumed is one of the functions of government. Examples of public goods include:-

(i) Internal security through maintenance of law and order by police and other security agencies.

(ii) External security through defense against external aggression by Army, Navy and Air Forces,

(iii) Provision of street lights and roads.

(c) Discouraging consumption of demerit goods: Tax can be used to discourage consumption of

demerit or harmful goods like alcohol and cigarette. This is done to reduce external costs to the

society. These external costs include health risks and pollution.

(d) Redistribution of Income and Wealth: Tax system is a means of ensuring the

redistribution of income and wealth in order to reduce poverty and promote social welfare. For

example, taxation can be used as economic regulator for promotion of economic stability and

sustainable growth through fiscal policy. Government also has responsibility for fighting

inflation, unemployment and creating a sound infrastructure for business. A tax system is one of

the means of achieving this.

(e) Harmonization of Economic Objective: Harmonization of diverse trade or economic

objectives of different countries is one of the modern objectives of tax systems. For example, tax

system can be used to achieve the philosophy of the single market in ECOWAS or Africa so as

to provide for the free movement of goods/services capital and people between members states.

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2.1     IMPORTANCE OF TAXATION

Tax as a major source of revenue content calls for greater attention in both state and federal

Government Budget.

The tax collected from all sources comes back to taxpayers in form of social amenities provided

for them. Income tax has definitely private sector depending upon weather the policy of the

government is gingered towards discouraging or encouraging such companies. It reduces the net

return on investment and also decreased balance available for unnecessary private saving. 

Taxation is an all-pervading subject which affects the lives of nearly everybody and no major

accountancy or legal problem can be satisfactory sowed with out consideration of its tax

aspect. Benjamin Franklin a state man and a philosopher observed that in this rooted, nothing is

certain but death and taxes. 

Taxation is particular important to businessmen who enjoy the benefits of these essential

amenities provided by the government. 

Income case has its own merits in the personal relief granted to taxpayers. Tax is also used to

allocate resource for the production so social goods. 

Social goods are goods whose benefits are not limited to the particular consumer who purchases

it as in the case of private goods. Through taxes funds can be allocated or denied for the

production of certain private goods. These corrections are done through tax policies, tax

holidays, and acceleration capital allowance dating drawbacks excess profit tax. 

Other forms of tax are used to alleviate the social burden of poverty on the poor. It may be

achieved by a tax transfer scheme, which progressively taxes high income in order to provide

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some form of subsidy to the low-income earners. Under this, the rate of taxation increases with

income, thus the higher the income the higher the percentage paid as tax. 

Through tax transfer scheme the government identifies some goods and services largely enjoyed

by the low-income group and transfers the extra income form progressive taxation to finance

subsidy on such goods and services. 

Other ways the social burden of poverty can be alleviated include progressive taxation for the

funding of public services financing public service particularly those most beneficial to low-

income earners of the society may also be obtained from tax proceeding.

Public services such as Government mass Transit system, public housing schemes, free or

subsidized health care delivery system and a lot of others are all accomplished through tax. 

Mostly the high-income earners at times deliberately directed towards the re-alignment of

income by taxing those goods purchase taxation. While at the same subsidizing those goods

enjoyed mainly by low-income group by progressive tax matter the redistribution of income is

perfectly done through taxation. The Nigeria taxation policy heavily taxed such luxury items like

satellite dishes, Mercedes Benz cars, ‘V’ boot brand part-finder etc. simultaneously the import

duties on Mass Transit cars or spare parts for buses used for mass transportation attracts little or

no tax in a bid to help the poor. 

Another important follow up in the newly introduced value Added Tax in Nigeria where all

essential goods are zero rated while their luxury goods attract 5% flat rated tax as value added.

It’s reasoned that one “ the have” enjoy the luxury items while the “ wretched of the earth”

mostly enjoy the essentials. This objective is to help the poor and not to stop the rush. 

Taxation is also an instrument for the stabilization of the economy. Directing taxation policy

toward achieving a socially acceptable rate of economic growth, maintaining a stable price level,

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and achieving full employment does this. 

Unemployment as under employment are other economic disability often fought by the

government through the use to taxation policy. For instance, a reduction of taxation rates and

factor imports effectively tackles unemployment problem caused by high cost of factor imports.

Similarly unemployment caused by an enlighten unavailability of the factors in the regular

market cannot be resolved by tax relieves rather tax measures that encourage attentive sourcing

of the materials are most desirable. 

Such tax measures are granting of tax holidays, accelerated capital allowance on depreciation.

One can equivocally say that if the government can achieve the aforementioned objectives

through taxation policy, they are all economic development in-toto. Taxation policy is also used

to protect local industries and thus ensure their growth. 

Government many achieve this through the imposition of high tariffs on imported substitutes to

locally manufactured goods in order to maker the price of the former very repellent to local

consumers. 

Tax system is also selectively employed to influence private investment may remove taxes on

agricultural implement such as tractors fertilizers etc in order to encourage investment

agricultural sectors and this increase food production. Government may grant tax holidays to

agro-allied industries in favour of the populace. 

On the other hand, high tax rate can be used to stifle the growth of industries considered to be to

little or no social relevance to the society. Instances are tobacco and alcohol industries. On a

general note therefore, the stimulation of aggregate demand and supply leads to general

economics growth whereas the contradiction of aggregate demand and supply through tax

policies shows down the growth of the economy. 

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Generally tax adjustment are used to influence consumption and investment. Tax rates may be

used to affect the overall level of demand and supply or to direct and channel demand and supply

to achieve flamed targets.

What is Tax?

Tax, in general, is the imposition of financial charges upon an individual or a company by the

Government of India or their respective state or similar other functional equivalents in a state.

The computation and imposition of the varied taxes prevalent in the country are carried on by the

Ministry of Finance’s Department of Revenue. During the year of 2010 – 2011, the gross

collection of tax amounted to around INR. 7.92 trillion, where the direct tax has got 56 %

contribution and the indirect tax has got 44 % contribution. In 2014-15 the gross tax collection

was up by 5,46,661 crores or by a percentage of 12.93% as compared to what is was in the fiscal

year 2013-14. 

Different Types of Taxes

Prevalence of various kinds of taxes is found in India. Taxes in India can be either direct or

indirect. However, the types of taxes even depend on whether a particular tax is being levied by

the central or the state government or any other municipalities. Following are some of the major

Indian taxes: 

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 Direct Taxes

It is names so because it is directly paid to the Union Government of India. As per a survey, the

Republic of India has witnessed a consistent rise in the collection of such taxes over a period of

past years. The visible growth in these tax collections as well as the rate of taxes reflects a

healthy economical growth of India. Besides that, it even portrays the compliance of high tax

along with better administration of taxation. To name a few of the direct taxes, which are

imposed by the Indian Government are:

 Banking Cash Transaction Tax

 Corporate Tax

 Capital Gains Tax

 Double Tax Avoidance Treaty

 Fringe Benefit Tax

 Securities Transaction Tax

 Personal Income Tax

 Tax Incentives

Indirect Taxes

As opposed to the direct taxes, such a tax in the nation is generally levied on some specified

services or some particular goods. An indirect tax is not levied on any particular organisation or

an individual. Almost all the activities, which fall within the periphery of the indirect taxation,

are included in the range starting from manufacturing goods and delivery of services to those that

are meant for consumption. Apart from these, the varied activities and services, which are related

xxii
 to import, trading etc. are even included within this range. This wide range results in the

involvement as well as implementation of some or other indirect tax in all lines of business. 

Usually, the indirect taxation in the Indian Republic is a complex procedure that involves laws

and regulations, which are interconnected to each other. These taxation regulations even include

some laws that are specific to some of the states of the country. The regime of indirect taxation

encompasses different kinds of taxes. The organizations offer services in all or most of the

related fields, some of which are as follows:

 Anti Dumping Duty

 Custom Duty

 Excise Duty

 Sales Tax

 Service Tax

 Value Added Tax or V. A. T.

Municipal or Local Taxes in India

The most known tax, which is levied by the local municipal jurisdictions on the entry of goods,

is known as the Entry Tax or the Octori Tax. 

Income Tax

Income Tax in India includes all income except the agricultural income that is levied and

collected by the central government. This particular income is also shared with the states. The

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Income Tax was incorporated in India from the year1860. 

However, after many alterations, finally with the Indian Income Tax Act, 1922, there was a

revolutionary change brought by the All India Income Tax Committee. This is significant as after

this the administration of the Income Tax came under the direct control of the Central

Government. This Act got amended again in the year 1961, and the present Income Tax regime

in India is still following the provisions of the Act of 1961. 

As per the Income Tax Act 1961, the assessee whose total income level is more than the

maximum exemption limit, are under the domain of chargeable Income Tax. The assessee has to

pay the Income Tax at the rates stated in the provisions of the Finance Act. The payment of the

Income Tax is to be calculated on the total income of the last year in the relevant financial

assessment year. For the determination of the total income of an individual the residential status

in India is a necessary parameter. Every Income Tax payer should file Tax Return.

Consumption Tax

Consumption Tax is applicable on the consumption of any type of good or service. This

particular tax is based on consumption and not on income or labor. The Consumption Tax can be

regarded as a sales tax, as this tax is also regressive in nature like the other pure sales taxes.

However, there are some remedies by which the Consumption Tax can be made progressive in

nature. Some of the methods for reducing the regressive trait of this tax include use of

exemptions, deductions, graduated rates, or rebates. This will in other terms allow accumulation

of savings exempting the tax burdens. 

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Dividend Tax

Dividend Tax is type of an income tax which is levied on the payments made as the dividend to

the shareholders of the company paying the tax. Dividends are the shares of the profit of the

company which are the given to the shareholders. 

The controversy arises here because dividend is nothing but the part of the profit of the company.

The profit is the income of the company and a tax is paid on that income. Again, when the

dividend is paid to the shareholders, a dividend tax is levied on them and so there is double

taxation on the same income - once, tax is paid by the company and then the shareholder pays

the tax on the same amount as well. 

The dividend tax has become one of the major issues of debate in the financial market. Many of

the countries are taking steps for abolishing the dividend tax as because the double taxation is not

considered good for the economy. The dividend tax also poses a problem for the senior citizens

and the retired personnel. Many financial experts are of the opinion that dividend tax should be

abolished in order to develop the economy and a fair practice of taxation should be followed. 

xxv
Endowment Tax

Over the years Indian companies have been asking for a break from endowment taxes so that

they can provide the institutions with more funds. Prominent businessmen like Rajan Mittal, the

Vice Chairman cum Managing Director of Bharati Enterprises have lent their support towards

giving business organizations 100 percent break from endowment taxes. 

He has reasoned that this benefit is necessary so that companies could contribute towards better

research in the higher educational sector. His statements have found support from other well

known names in the Indian business fraternity such as Amit Mitra, who works as the secretary

general of the FICCI. 

As of now, Indian companies can provide financial aid to educational institutions that are located

outside the country as they are operated by trusts. In India, trusts that run educational set-ups can

receive the benefit only if they are acknowledged as a section 25 organization as per the Income

Tax Act or under the charities commissioner. Lot of companies provide financial aid to

international education institutes and the main reason for this is the attitude of the Income Tax

Department, which sees such transactions as tax evasion exercises. These business houses also

prefer to be transparent when it comes to detailing the usage of funds spent by them. 

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Estate Tax of Inheritance Tax or Death Tax

Estate Tax, also referred as Death tax or Inheritance Tax, is gaining prominence with the boom

in the real estate market across the world. The Estate Tax rates vary widely across countries all

over the world. 

It is recorded that Japan stands at the top offering a tax rate of 70%, followed by South Korea

(50%), the US (46%), and 40% for France and UK each. Along with India, there are some other

countries like China, Australia, Russia, and Malaysia, which do not levy Estate tax. It should be

noted that Estate Tax or Estate Duty which was earlier incorporated in India in the year 1953,

was taken away under the aegis of the then Finance Minister, V.P. Singh in the year 1985. The

economic growth and flourishing capital markets in India have been generating an unprecedented

boost for the Indian promoters. Still not like the other advanced market economies of the world,

there is no Estate Tax in India. On the other hand, across the globe the Estate Tax, also known as

the Death Tax, is very important. 

In general, the Estate Tax is payable on the economic value of the accumulated savings and

assets of a deceased person. This tax on Estate was framed with the objective to prevent the

inheritors from a rich family to enjoy too much privilege as compared to the less advantageous in

the society. The intention was to strike a balance and maintain inter- generation equity. On the

other hand, many tax experts often ridicule this Estate Tax, as this is difficult to assess and

collect. 

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Flat Tax, also known as Flat Rate Tax

By Flat Tax or Flat Rate Tax it is indicated that the taxes on household income and corporate

profits are fixed at a constant rate. Generally household income below a statutorily fixed level on

the basis of the type and size of the household, are exempted from paying Flat Taxes. 

This type of Flat Taxes is not a proper Flat Tax as there is a discrepancy between the taxable

income and the total income. Taxation on consumption can also be labeled as a Flat Tax. In the

advanced economies, a tax is payable on the incomes of the households and corporate profits, as

a result of which Flat Tax is not very common in these nations. The United States have initiated

a quick move to reform its tax system as under the present condition of competition in the global

economy the jobs and capital flow to with the initiation of better tax law. The nine countries of

the former Soviet Bloc have taken up versions of the Flat Tax, which has been yielding excellent

results for the growth and development of the respective economies. 

In general, a Flat Tax is simple, fair, and sets a necessary parameter for the growth of a state

economy. Flat Tax requires only two forms of postcard size, one for labor income and the other

for business and capital income. Flat Tax provides equal treatment to all the taxpayers without

any discrimination based on the source, use, and level of income. This is also beneficial, as Flat

Tax would reduce marginal tax rates and abolish the tax bias against all forms of saving and

investment. However, even this Flat Tax is not free from loopholes as the households on the

basis of family sizes get an exemption from paying the stipulated tax. 

xxviii
Fuel Tax

Fuel tax is also called as petrol tax, gas tax, gasoline tax, or fuel duty. The fuel tax is a type of a

sales tax which is imposed on the sale of fuel. The fuel tax is one of the important factors

pertaining to taxation in many countries. 

The fuel tax in some countries is mostly hypothecated to roadways and transportation facilities

such as in United States. The fuel tax in several other countries is regarded as the source of

general type of revenue income. The fuel tax is mostly imposed on the fuel which is used for the

purpose of transportation and not imposed on fuel used for the purpose of running agricultural

vehicles, used as heating oil in households and other non transportation uses. 

The demand for petrol is not very elastic in nature, so the fuel tax will regarded as a revenue

generating source in the short run of the economy but as time passes, in the long run as per the

theory of the experts, the populace would lower the consumption of fuel by the means of mass

transit systems, fuel economic transport facilities, alternative source of fuel, etc and the sale of

the fuel would fall, bringing down the tax revenue on the fuel. Some of the environmentalists are

thinking of the idea of introducing fuel tax as a method of checking the pollution due to the

burning of fossil fuels. 

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Gift Tax

Gift tax in India is regulated by the Gift Tax Act which was constituted on April 1, 1958. It came

into effect in all parts of the country except Jammu and Kashmir. As per the Gift Act 1958, all

gifts in excess of Rs. 25,000, in the form of cash, draft, check or others, received from one who

doesn't have blood relations with the recipient, were taxable. More about Gift tax 

Sales Tax

Sales tax is levied when goods are sold or bought within a country or a state. More about sales

tax 

S. E. T. or Self Employment Tax

Self-employment tax (SET) is a type of a taxation pertaining to the social security tax and the

medicare tax for the individuals those who are self employed, i.e., the people engaged in

business or commercial activity of some kind which is legally approved by the Governmental

authorities. The concept of self-employment tax is more or less similar to the social security tax

and the medicare tax which is withhold from the monthly income of the professionals engaged in

any kind of services under the private or the public sector. The employers of most of the working

professionals calculate the social security tax and the medicare tax of the concerned person. 

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Social Security Tax

Social Security Tax is a popular concept in the United States of America. The Social Security

Tax is a benefit scheme for the employees after their retirement from work. 

The social security tax is contributed in two parts - a part of the monthly income of the employee

is deducted at source and another part is contributed on a monthly basis by the employer under

whom the employee is working. The total sum of money makes up the social security tax. The

social security tax benefits are financed with the help of the tax levied on the employee's income.

In case of a self-employed person, the contribution for the social security tax is made entirely by

the person himself. The social security tax is levied under the norms of the United States Social

Security Act of 1935, which was set up for the purpose of providing national social insurance in

order to provide economic security to employees in the United States. 

The social security tax programs are popular in India in the name of Provident Fund. The

concept of the Provident Fund is similar to the social security tax programs. Provident Funds are

of different types such as Public Provident Fund, General Provident Fund, and Employee's

Provident Fund. The General Provident Fund is provided to the employees of the central

government, the Public Provident Fund is provided by the State Bank of India, the largest

commercial bank in India for the employees of the state government, and the Employee's

Provident Fund is also provided by the State Bank of India, for the private sector employees. 

xxxi
Transfer Tax

Transfer Tax in other words implies the tax imposed on the handing over of the title of property

ownership by one person to another. It incorporates a legal transaction fee, which is involved

with the title to property being transferred from one to another. 

This tax is not very common form of taxation and is imposed where the registration of the

transfer involves a legal requirement. Such are generally found to be associated with transfers of

real estate, shares, or bond. Although Stamp Duty and the Real Estate Transfer Tax are examples

of the Transfer Tax, it should be noted that the fees paid to the notaries during any legal

jurisdictions are not treated as transfer tax. 

Payroll Tax

Payroll tax is one of the important concepts in taxation. Payroll tax comprises of 2 types of taxes.

The Payroll tax may follow a fixed rate format or the rate may be directly proportional to the

income or wage of the employee. More about payroll tax 

Poll Tax

In India, Poll Tax is similar to the road tax on vehicles, but it should be noted that this tax is not

very popular here. However, in the year 2002, it was decided by the Minister for Transport that

the Poll Tax on all-India tourist vehicles entering the state of the Jammu and Kashmir would be

xxxii
 Rs. 2,000 per day per vehicle. 

Property Tax

The property taxes in India are normally imposed on the yearly value of the taxable assets. In

case the income is rental, it will be subjected to the tax rates applicable for income from housing

property. 

If the property is held for professional or business reasons then the profits from the same will be

subjected to taxes: 

Property Tax Deductions

In India deductions from property taxes are provided in the following cases:

 If 30% of the yearly value of the house has been used for maintenance and repairs

 If the property has been bought, repaired, established, or renewed using loans. If the

house has been remade using borrowed money then the interest paid on the same will be

exempted from property taxes.

Concept of Deemed Owner

In few cases the assessee may not actually own the property but may be regarded as a deemed

owner. In such instances, the assessee will be regarded as the property's owner and income

generated from that property will be subjected to property taxes. 

xxxiii
 The following cases are regarded as being instances of deemed owners:

 If an individual has handed over any property for a small compensation or has gifted it to

a minor child or spouse. However, transfers to married daughters will not be considered.

 Any individual who conforms to the provisions in the Section 53A of the Transfer of

Property Act will be considered a deemed owner. This section focuses on situations whereby a

building has been transferred but there is no proper registered agreement to document the

transaction.

 Owners of impartable estates are regarded as possessors of such property.

 If an individual has leased a property for a minimum period of 12 years he or she will be

regarded as a deemed owner.

 Members of co-operative societies, companies and other associations who have been

assigned a real estate property as per a house building scheme are considered as deemed

owners.

Self Occupied Property

A property is regarded as a self owned one under the following circumstances:

 If the property or a part of the same is owned for residential purposes

 If the property or a certain portion of it is being used for business and professional

reasons and the owner has to stay at another location

Co-owners

If a property is co-owned by 2 or more people the following factors come into play while

deciding on the tax amount:

 If the co-owners have definite and clear shares they will not be regarded as an association

xxxiv
 The share of every individual who makes an income from the property will be included in

the aggregate income of the co-owners.

xxxv
 RESEARCH
METHODOLOGY

RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. It may be

xxxvi
Understood as a science of studying how research is done scientifically. In it we study the

various steps that are generally adopted by a researcher in studying his research problem along

with the logic behind them.

SOURCES OF DATA COLLECTION:

Secondary Data Collection:

It refers to the statistical material which is not originated by the investigator himself but obtained

from someone else's records, or when Primary data is utilised for any other purpose at some

subsequent enquiry it is termed as Secondary data. This type of data is generally taken from

newspapers, magazines, bulletins, reports, journals etc.

The method used by me for secondary data collection is:

 Journals

 Internet

 The study focuses on extensive study of Secondary data collected from various books,

National & international Journals, government reports, publications from various

websites which focused on various aspects of Goods and Service tax.

Research Design:

xxxvii
Descriptive research is also called Statistical Research. The main goal of this type of research is

to describe the data and characteristics about what is being studied. The idea behind this type of

research is to study frequencies, averages, and other statistical calculations. Although this

research is highly accurate, it does not gather the causes behind a situation. Descriptive research

is mainly done when a researcher wants to gain a better understanding of a topic.

xxxviii
REVIEW OF

LITERATURE

xxxix
 LITERATURE REVIEW

According to Nwoke (1993:1) taxation can be defined as the imposition of an obligatory levy or

contribution of an individual or corporate donate by recipient, public authority. Two important

attributes of taxation are that the levying authority posses the legal capacity to do so since

taxation is a legal policy and it evolves an element of compulsion as opposed to voluntaries. 

The bedrock of industrialization and economic development of any country is government

revenue. How much of this revenue is contributed by tax? According to Nwoke (1992:12) in all,

taxes constitute about (75%) seventy five percentage of regular government revenue and about ¾

of public expenditure is founded from tax revenue. As a major instrument of public policy,

taxation can be used as protective, allocation, and distributive or stabilization instrument.

Taxation may be employed to expand, stimulate, restrict, or regulate the economy depending on

the direction the government wants to. One may be tempted to question the rationate behind

government intervention in the economy especially the capitalist economy. Where the invisible

hands of market forces should have been allowed to arbitrate as it deems fit. 

The simple reason for time to time government intervention is that it’s necessary to bring in

some form of administrative control in the economic system. The maker mechanism above

cannot perform all the economic functions. 

Government intervention is therefore needed to guide, correct and supplement it in certain

aspects. Through the intervention, necessary conditions for the functioning of the market

mechanism is secured: the issue of “ market failure” is addressed exist are prevented. It has been

observed that the market system, no matter how technologically developed and efficient, does

not, of its own lead to goals of full employment of actors and resources price level stability and

xl
socially acceptable rate of economic growth. Experience has shown that the economy needs to be

guided to attain these goals.

If for instance the government want to raise more fund for the execution of some additional

projects at many increase personal income tax at may impose a super profit tax on corporate. No

raise of company income tax (C.J) It may reduce or withdraw subsides on Agriculture or

petroleum products as we are taxes on some luxing products

Professor Kal Dor (1993,28) stressed the use of a tax system to provide incentives to private

investments. He further reiterated the need to use tax concessions to attract foreign investment.

To him a great deal of the prevailing concern with incentives is misplaced except in particular

cased where the granting of the concessions of to foreigners may increase the flow to capital

from abroad. It is the shortage of resources and not inadequate incentives, which limits the pace

of economic development form the point of view of accelerated economic development could

hardly be exaggerated. 

Professor Due, an expert on consumption as basis of taxation in his review of the fiscal system

of eight African countries show a general concern over restricting the incentive to work, to

participate in the market economy, to save and to develop and expand businesses.

Professor Walker (1970) emphasized more on equity considerations, the minimization of costs

of collection and the need for the public to appreciate the linkage that exist between tax burdens

and benefits. 

Chitale (1978) reviewed the tax incentives for savings available under the Income Tax Act

and evaluated different alternatives to make tax structure more savings oriented. The author

recommended the extension in scope of Sec. 80C to cover 10-15 years fixed deposits in banks

xli
and removal of Rs. 20000 ceiling of qualified amount. It was highlighted that tax benefit from

qualified savings did not depend on amount saved, but it depended upon one‟s taxable income. It

implied that cost benefit principle was ignored under section 80 C. It was suggested that the rate

of tax benefit should be made progressive as in the case of tax rates. The study also suggested

that instead of an individual, the family consisting of father, mother and minor children should

be recognised as basic unit of assessment as that could curb the problem of inequality of

consumption by checking the splitting of income.

Rao (1979) attempted to examine the responsiveness of the union and state tax structures and

changes in selected individual taxes with respect to changes in national income and their

respective bases from 1960-61 to 1973-74. He highlighted that the overall trends of revenue from

taxation in India showed a steady increase over the period. He further concluded that the

elasticity of most of the individual taxes was low. So, the changes in taxation system did not

facilitate much to improve the automatic growth of the tax receipts.

Sundram and Pandit (1979) tried to find out what ought to be the logical tax entity and its

impact on equity and revenue. The authors opined that tax entity should be identical with the

decision making unit and in India decisions were taken by nuclear family (Husband, wife and

minor children). Under the existing system of taxation, H.U.F. and individuals have always been

taken as independent assessment units leading to multiple tax entities.

xlii
CONCLUSION

xliii
 SUMMARY AND CONCLUSION

SUMMARY OF LEARNINGS EXPERIENCE

• To get initial success in this field is very difficult. Although the business generation becomes

easier with time as we serve more people who then get added up in the loyal clientage. Thus time

and service are two most factors to get in this field.

• Also the corporate remains a very important segment which gets business in bulk but retail

cannot be ignored which makes your business ticking.

• Customer remains in the pivotal position.

CONCLUSION:

xliv
Under the umbrella of my project, we the participants of this project were glad to understand the
design and pattern of a Taxation As A Major Source Of Government Funding. My experience
with the various customers of the various companies was totally different and gave us an edge
adding to my knowledge.

BIBLIOGRAPHY:

Websites:

www.incometaxindiaefiling.gov.in

www.valueplus.njfundz.com

www.incometaxindia.gov.in

www.legalserviceindia.com

www.finance.indiamart.com

Reference books:

i. Harjeet Kaur (1992), Taxation and Development Finance in India, Classical

xlv
 Publishing Company, New Delhi.

ii. Jha S.M. (2009), Services Marketing, Himalaya Publishing House, Mumbai.

iii. Lakhotia Ram Niwas (1974), Elements of Indian Income-Tax, Asha

Publishing House, Calcutta-19.

iv. Mehrotra H.C. (1969), Income-Tax Law and Accounts, Sahitya Bhawan,

Agra-3

v. Nargundkar Rajendra (2009), Services Marketing – Text and Cases (Second

Edition), Tata McGraw-Hill Publishing Company Ltd., New Delhi.

vi. Ravi Shankar (2002), Services Marketing – the indian perspective, Excel

Books, New Delhi.

vii. Srinivasan R. (2006), Services Marketing – The Indian context, Prentice Hall

of India Pvt. Ltd., New Delhi.

viii. Venugopal Vasanti and Raghu V.N. (2006), Services Marketing, Himalaya

Publishing House, Mumbai.

ix. Vinay Kumar (1988), Tax system in India and Role of Income-Tax, Deep

and Deep Publications, New Delhi.

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xlvii