Sales Tax

Sales Tax or the tax on consumption is liable for payment during the purchase for certain goods and services. Such taxes involves a high compliance rate, can be calculated easily and the collection is simple as only one item is charged exactly once. At present the Central Sales Tax in India has been reduced from existing 4% to new 3%. Generally, attempts are made by the conventional or retail Sales Tax to charge the tax only on the end user. This ultimately prevents the pyramiding of the tax in which the items are subjected to taxes more than once, makes its way from production to final retail sale. The Sales Tax is the most important source of revenue of the state governments, with every state having their respective Sales Tax Act. The tax rates are also different for respective states. The Sales Tax authority in the state is responsible for the collection of the Sales Tax. Every dealer is liable to pay this tax on the sale of any goods affected by him during the inter-state trade or commerce.

The Sales Tax can be stated as a Regressive Tax, which implies that the low-income people generally tend to spend a greater percentage of their income in taxable sales than people with high incomes. However, such calculation of the Sales Tax is derived when the amount of tax paid is divided by the income and not by the tax base. It should be noted that while the Sales Tax may be regressive, the tax rates could be progressive on consumption with the inclusion of certain exemptions or rebates. At times there are necessary items such as non-prepared food, clothing, or prescription drugs which are out side the Sales Tax slabs to save the poor from tax burdens. In general, Sales Taxes are favored as by taxing only the consumption, it creates an inducement for savings and investment. Imported items and sales done by export are generally out of the Sales Tax burdens, while the Luxury goods are normally taxed at a higher rate than other commodities. There should be a Sales Tax ID number, which is the business version of the Social Security number of the taxpayer as well as the tax collector, qualifying the taxation in that state. The state department of taxation essentially provides this number.

Types of Sales Tax:

There are several types of Sales Taxes including Seller or Vendor Taxes, Retail Transaction Taxes, Consumer Excise Taxes, and Value Added Taxes.

The value-added tax or VAT is the most common type of Sales Tax under which all industries remit taxes on their sales but also get back the VAT amount so far remitted by their suppliers. The government in this case refrains from determining about which sales are taxable. This is because all categories of sales like retail, wholesale, and intermediate sales are taxable under the tax laws of India.