What is Tax? | GST Tax

Before we start with GST Tax that is Goods and Service Tax let us first start understanding the concept of Tax, Taxation and History of taxation.

The word tax has been derived from the Latin word ‘taxare’ meaning to estimate. tax is the fee levied by a government on a product, income, or activity. A tax is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority” and is any contribution imposed by government whether under the name of toll, tribute, impost, duty, custom, excise, subsidy, aid, supply, or other name.

The sole objective of taxation is to finance government expenditure. The most crucial use of taxes is to finance public goods and services, such as street lighting and street cleaning. Since public goods and services do not allow a non-payer to be excluded, or allow exclusion by a consumer, there cannot be a market in the good or service, and so they need to be provided by the government or a quasi-government agency, which tend to finance themselves largely through taxes. If tax is levied directly on personal or corporate income, then it is a direct tax. If tax is levied on the price of a good or service, then it is called an indirect tax.

What is taxation

History of Taxation

The first known system of taxation was in Ancient Egypt around 3000–2800 BC in the first dynasty of the Old Kingdom. The earliest and most widespread form of taxation was the corvée and tithe. The corvée was forced labour provided to the state by peasants too poor to pay other forms of taxation (labour in ancient Egyptian is a synonym for taxes). Records from the time document that the Pharaoh would conduct a biennial tour of the kingdom, collecting tithes from the people. Other records are granary receipts on limestone flakes and papyrus. Early taxation is also described in the Bible.

Taxation in India

The history of Income-Tax in modern India dates back to 1860 when the first Income Tax Act was introduced by James Wilson who became (British) India’s first finance member. Income Tax Act, 1961 came into existence with effect from 01.04.1962, based on the recommendations of the Law Commission and the Enquiry Committee.

Broadly, there are two types of Taxes viz. Direct and Indirect taxes. Taxes in India are levied by the Central Government and the State Governments. Some minor taxes are also levied by the local authorities such as Municipality or Local Council. The authority to levy tax is derived from the Constitution of India which allocates the power to levy various taxes between Centre and State.

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