'TAXES' occupy a significant position in today's business world.
Especially, in a place like India, 'TAXES' do come with their higher cost tags, inherent complexities, burdensome procedures and above all gloominess - all this inspired by social, politicial, economic, administrative and geographical factors. Thus, businesses are often left thinking about the tax expoure that they acutall face and thereby, strategising and finding out the best ways to deal with it.
Imagine, any commonly found business or commercial concern - a manufacturing unit or a service provider, functioning in India. Ever wonder, how would 'TAX' cause any impact to it and what all tax complexities would it have to deal with?
In our example of the manufacturing or service provider concern, we understand that its basic objective would be to convert raw material to finished product and sell it to the customers. Similarly, the service provider would perform various procedures and render services to its clients. This is what our manufacturing or service concern is meant to do. Hence, it would perform several such transactions in any given time frame. The wide impact of 'TAXES' can be seen in any and all transactions such organization would carry out as its basic objective or existence. 'TAXES' impact business in every sphere , every transaction of its existence. Ironically, the Tax impact does no stop here. It goes right up till the year-end when such our concern prepares its Financial Statements and again it has to pay a Tax bill. How does 'TAXES' impact business, lets see:
In a usual transaction, our manufacturing concern would purchase raw materials for producing the finished products. Imagine, in addition to the price of raw materials, its raw material supplier would charge 'EXCISE DUTY' as tax on manufacture of products and 'SALES TAX / VAT' being a tax on sale of products. If the goods are imported from a foreign land, there would be 'CUSTOMS' being a tax on import of goods to India. While transporting the products to the works of our manufacturing concern, there would be 'ENTRY TAX, MUNICIPAL TAX or OCTROI' being tax on movement of goods from one region to another. While processing such raw materials to finished products, our manufacturing concern would obtain severa services (of consultants, labourer etc.) on which it will have to pay 'SERVICE TAX' being a tax on services. Depending on where our manufacturing unit is located, it could have 'PROFESSIONAL TAX WORK CONTRACT TAX, Luxury TAX, Fuel TAX or Entertainment TAX'. Same would be the story with our Service concern as well.
Now we are ready with our final product, the manufacturing concern would again charge its customer, in addition to the product price, EXCISE, SALES TAX / VAT (set it off with the taxes it already paid at the time of purchase) and deposit with the Central or State Government. As many times, our manufacturing or service concern would perform its business, the above story would be repeated with every revenue cycle. All the above mentioned are called as 'INDIRECT TAXES'.
Now comes the year end and our manufacturing or service concern is ready with its Financial Statements and here again we have a tax bill to obey. Its time for 'DIRECT TAXES' now. Our manufacturing or service concen arrive at its yearly profits and pay 'INCOME TAX' thereon. It further pays 'DIVIDEND DISTRIBUTION TAX', 'WEALTH TAX' or may be 'CAPITAL GAINS TAX', 'SECURITY TRANSACTION TAX', depending on the operations it perform.
Now we have seen above that there is a whole gamut of DIRECT and INDIRECT TAXES levied by Central and/or State Government which impact any and all business concerns in many ways. While there is an underlying premise that INDIRECT TAXES are actually passed on by the business concern to its ultimate customer(s), concerns often tend to absorb a portion of the costs on its own. DIRECT TAXES certainly are a cost to the concern. But it is not only the levy of multiple taxes and incremental costs that impact and concerns a business.
COMPLIANCES that a business concern is required to perform at regular and sporadic intervals also hold considerable exposure. Tax return filings, Audits, Assessments, Withholding and Tax payment requirements on monthly basis are certain procedures that every concern has to mandatorily comply with (and with equal amount of seriousness!). Business concerns also have to deal with irregular behaviour of Tax authorities, bear with long drawn tax disputes and late redressal of issues by Appellate Authorities.
In sum and substance, TAXES have grown as a major concern for businesses, of late and it require businesses to remain on their toes and a constant proactive thinking in today's world to deal with its exposure effectively.
