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VINAYAK KUMAR

VINAYAK KUMAR (Querist)

30 April 2010 Sir/Madam
Please suggest me that what is Horizentol vs Vertical tax equity system.
thanks.

CA CS CIMA Prakash Somani

CA CS CIMA Prakash Somani (Expert)

30 April 2010 I dont know what it is from tax perspective but from analysis perspective it is as below:

Vertical : When you are comparing % of total exp or Income or asset or liability

Horizontal: When you are comparing single line item with previous years..

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)

30 April 2010 Horizontal Equity
Horizontal equity in taxation means, same tax rate is applicable to all individuals who are identical in all relevant espects. Identical in all relevant respects implies equal on income level, or capacity, age and marital status. Only
for sake of simplicity, we consider these three criteria as a basis. These three are
the most acceptable parameters of basis for the application of horizontal equity.
Still, problems are plenty with even these three criteria. For instance suppose ‘A’
and ‘B’ have same level of income ie, ‘A’ and ‘B’ are identical in all relevant
respects. So the government impose 20% tax upon both. Suppose that ‘A’ has a
daughter who has been affected by an acute heart disease. So ‘A’ has to spent a
larger portion of his income as medical expenses. In such situations, can we say
that, imposition of same rate of tax upon ‘A’ and ‘B’ is “fair” or “just”? Certainly it is not. To achieve, we have impose a reduced tax upon ‘A’. Now – a – days up to a certain extent government gives tax exemption to medical expenditure. Such
exemptions are allowed by the government for achieving the principle of horizontal equity in taxation. Another popular xample is the exemption given to interest on housing loan up to Rs. 150,000.

Vertical Equity
Vertical equity means imposition of higher rates of tax upon people
who have higher a – t – p and lesser rates upon people who have less a – t – p.

Shyam Lal Naik

Shyam Lal Naik (Expert)

30 April 2010 As I understand, Equity in taxation means, no person shall be in a more favourable or unfavourable situation. It may also mean that the taxation structure should ensure equitable distribution of wealth.

Vertical Equity means, those who are in higher economic stratra shall be liable to contribute more taxes. for example, the rate of personal income tax increases with increase in level of income. Luxury goods are subjected to higher rate of VAT, than goods of mass consumption.

So far horizental equity is concerned, it means, persons in virtuall same economic stratra, shall be subjected to same amount of taxes/concessions etc.

However, in practice, there are distortion of the principle of equity in taxation. It is said that, taxation and equity are strangers.

Let there be more opinion.