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Tax Vis Duty:

'Tax' is normally taxing and burdensome, while on the other hand 'duty' is an obligation, task and responsibility. Tax is levied by the Government on the income, activity or commodity. It is into two main groupings -Direct Tax and Indirect Tax. 

Direct tax includes income tax or wealth tax, but the latter is given voluntary sent off. Indirect taxes cover so many taxes like purchase tax, sales tax, then value-added tax, wealth tax, service tax and presently elevated to GST etc.  In other words, tax is a financial obligation which is to be paid to the government compulsorily. 

On the other hand, 'Duty' is a fee payable to the government on the manufacture and import/export of goods. Conversely, the major types of duties are Excise Duty and Customs Duty, besides estate duty that was given goodbye from the statute book a long time before, on the ground that it was neither viable nor economical to administer.

The Central Government or State Government can impose taxes, but only the Central Government has the authority to levy duty.
Though both taxes and duties for a bare look are various sources for revenue, there is a- subtle difference - unlike in the case of taxes where they are collected at the time of transfer of property, in the case of custom duty-import and export duties, they are primarily 'imposed' rather 'levied' to regulate and take care of the local industries and their interests - to promote exports and encourage local productions by properly leveraging the said duties rather than only as taxing mechanism. In other words, the said levies are the duties cast on the government to take care of domestic industries interest from the competition, especially cutthroat, from across the globe. 

In the case of excise duty, it was primarily levied on the manufacture, though money-spinning was an attended effect but now submerged into GST a big-ticket tax reform launched in June 2017. Exercise duty was rightly termed so for reason that it is the ordained duty of the manufacturing units to compensate for the disturbance it has created in the locations where the said units are established.  Most of the industries disturb the locations on various counts---ecological disturbance, pollutions caused by effluences, fumes, litters, toxic waste, other contaminations and what not. Therefore, it should be the onus of the concerned industries to shoulder the responsibility and hence, it was rightly called duty. 

Submerged Accounting Call:

Now, as part of tax reforms, it has been added as part of GST, by surrendering the central domain into GST. But, what was accosting impact? So long, excise duty was part of manufacturing cost and hence part of total revenue, though shown as a deduction from that.

Think for a moment, if Import Duty and Export Duty are also brought under the wider umbrella of GST, as various States demand more often than not, will they also cease to be a cost of materials imported? What call these Standards will take without proper amends/restitution? Will the ICAI wake up before it is too late? Tax reform is OK but, it should not turn a blind idea for accounting call.

Besides, the accounting treatment suggested in a few Ind.AS Standards call for major rethinking sooner than later to eschew avoidable confusions crept in.

Major Sea Change under Ind.AS 116 on Leases:

Under Ind. AS 116, 'right-of-use' model replaces the 'risks and rewards' model. Lessees are required to recognise an asset and liability at the inception of a lease. As a result,  there will a sea change for lease accounting especially in the books of the lessee because 'Operating leases' are virtually given goby / send off to rope in Balance Sheet a 'Leasehold  Asset'  with a corresponding liability.

In other words, the distinction between operating and finance leases is practically eliminated for lessees in the books of lessee except for short term lease -- a lease which has a lease term of not more than twelve months on the date of commencement is regarded as a short term lease and for Leases for which underlying asset is of low value (as described in paragraphs B3- B8) of the Standard.

What is the consequence? Supposing, a company coming under Ind AS takes on non- cancellable lease an office building for a period, say, of five years with a possibility of extension, It has to recognise 'Right to Use' as an asset with an equivalent liability. In the books, concerned depreciation and interest on liability will be accounted as a charge. But, as per agreement with lessee, Lessor has to pay rent? How tax will be deducted from non- existence account? Therefore, CBDT in consultation with ICAI should come to raise to the occasion and come forward with a reasonable salutation so that the lessee is not in the wilderness, lest, it is apprehended that the TDS will be reduced to a tedious process for the lessee.

Very similarly, ICAI in consultation with CBDT should come forward for land lease for a longer period with /without advance so that Accounting /Auditing communities are not a loss to decipher correct accounting treatment.

Direct Tax a different approach- industry:

Coming to the tax regime, it should have 'target' to 'accelerate' economic growth for the public good and should have 'X' factors to generate enthusiasm among the people at large to move forward. The article is on the topic/focus that deserves a separate/special space.

Coming to the Direct tax, there should be a different approach - between individuals and business income. Industrial growth is the need of the hour. Any industrial development increases production level, employment benefits, exports, infrastructural and social developments multiply and as a consequent revenue collections increase. Therefore, there is a case to have a lower level of taxation if the country has to compete with other nations. The Budget responded partially to the call by extending the lower rate of corporate tax of 25% to the companies with a turnover up to Rs 400 crores.

Direct Tax a different approach - Individuals:

Capacity to pay is the dictum in the tax regime for individuals. One cannot equate a person with an income of Rs. 10 lakhs with individuals earning in Crores. The present budget has responded to the call by increasing surcharge on super-rich--- individual taxpayers having income exceeding `2 crores, ---the rate of surcharge on individuals having income from `2 crores to `5 crores have been increased to 25% and for individuals having income exceeding `5 crores to 37%. The existing rate of surcharge on these taxpayers is 15%. Accordingly, the effective tax rates on these taxpayers would reach 39% and 42.74%, respectively. The super-rich should not take it a burden but, an obligation, in fact, a duty to the society. If required, it may be brought in line with corporate social responsibility (CSR) applicable to companies with an average net profit of at least 50 million rupees over a period of three years, so as to inculcate a spirit of contribution.


It is not on article on Budget but, to address the issues where clarity is required to decipher 'Tug of War between 'Tax and Duty' Consequent to advent of GST and Accounting Standards- both of IGAAP and Ind. AS. For Super Rich, motivate them by branding the additional collection as contribution to Social Responsibility so that they feel the participating spirit.


Published by

P.R. Sethuraman
(Chartered Accountantant)
Category GST   Report

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