An Empirical Study on Incidence of Sales Tax

Sales tax is a levy on the sales or elements incidental to sales. The modern form of sales taxation is of very recent origin in India but in the world history it came into existence during the depression period after the Second World War. In India, the sales tax existed during Mauryan, Rajput and Cholan periods. Sales tax as an important fiscal measure attracted many nations to cope with the financial stringencies created by the World War I. The government of India Act, 1935 envisaged federal character with a provision of provincial autonomy. The prevalent forms of sales taxes can be classified in general, according to scope, general and selective and according to the legal basis of imposition, on buyers or on sellers. The application of incidence theory to the taxation on sales has been complicated by a wide variety of institutional circumstances, surrounding this kind of tax. Generally, sales tax is shifted to the buyer but the extent to which this shift takes place cannot be quantified. The impact of sales tax is on the seller as he pays it, in the first instance. It is thus but natural is resist and try to avoid the taxing over of its burden. Some studies done by some economist. In this study, estimating of sales tax incidence in (Rajasthan, Madhya Pradesh, Uttar Pradesh, Punjab and Haryana) (2000-2010) have been discussed. We can change the taxation policy accordingly. By knowing the actual tax payer, government can provide economic subsidy when needed. The present study aims act computing money burden of sales tax. There will be three methods used for per capita sales tax incidence through population, through national income and Per capita commodity wise sales tax incidence. The per capita burden of sales tax and total tax of states under study reveals that the burden is the highest in Haryana followed by Punjab, Rajasthan, Madhya Pradesh and Uttar Pradesh. The per capita incidence of sales tax is higher in Haryana and Punjab which are developed states regarding industry and agriculture. While in Rajasthan, Uttar Pradesh and Madhya Pradesh which are industrially backward states, the per capita incidence of sales tax is lower. The share of sales tax in state income is negligible in each state. Punjab and Haryana are in a better position then Rajasthan, Uttar Pradesh and Madhya Pradesh. The burden of sales tax on food item was heavy in each state. Uttar Pradesh shows a poor position in comparison to other states.