If we look at the final price of a product by to a consumer who does not take any input credit, we can make the following observations:
1. The value chain has made a payment of indirect tax at the different rates applicable for the the industries at the their stage of value addition.
2. On the amount of value added in the value chain at each stage, every player has paid and income tax on the amount of the value added.
Thus, when a product is being sold for rupees hundred with a GST of 18%, the government has received:
1. Rupees 18 of the GST
2. Rupees 30 of the income tax
From all the members of the the product value chain.
So the ratio of the money e the entire value chain and the government stands at:
70 (Industry) : 48 (Government)
We can see that the effective rate of taxation for the entire value chain as well as each individual company in the value chain in India in 2020 is around 68.5%.
This underlines the importance of tax management.
The taxation environment is not as uniform and standard as described in the example above.
There are many e differences in applicability and rates of taxes. There are exemptions for many activities. Taxation is is also governed by the transaction structure. There is also an effect of who is conducting the transaction.
This article has been provided only for knowledge sake. We advise the small and medium enterprises to consult the tax experts for tax planning, tax compliance and reduction in incidence of tax or postpone of payment of tax, etc.
Apohan does NOT deal in tax consultancy.