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gopal

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26 July 2015 difference between tax & duty

Arpit Shah

Arpit Shah (Expert)
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27 July 2015 Duty vs Tax
Any government has many responsibilities to fulfil for the development of the country and its people. For this it needs resources and these resources come from various sources such as taxes and duties. Thus duty and tax are two important sources of revenue for the government. Both tax and duty are not voluntary contributions but are rather monetary burden laid upon people to support the functioning of a government. Money collected through duty and tax is used by the governments for various purposes such as the expenditure incurred on maintaining law and order, public works such as building roads and bridges, hospitals and schools, public transportation, pensions, social benefits for the people, paying salaries to government employees and nation’s security.

Duty

Duty is a type of tax that is levied upon goods imported from another country. It is also levied upon goods manufactured within the country such as excise duty. The word duty is mostly used in respect of goods such as custom duty, import duty, excise duty and so forth. Duty is levied only on goods and not on individuals. The most common example of duty is custom duty which is an indirect tax levied upon goods that are purchased from foreign countries and the buyer has to pay tax on them when they enter the country. Similarly, duty that is imposed upon goods going out of the country is called export duty.

Tax

Taxes are levied by a government to fulfil its obligations towards the citizens. They are the backbone of all the revenues generated by any government. Thus the money collected by the government from the private sector comes within the purview of taxes which includes duties. Taxes are obligatory and not involuntary which means that a person is punishable by law if he fails to pay his taxes.

Taxes can be direct or indirect such as income tax which is a direct tax and VAT which is an indirect tax. Irrespective of the nature of taxation, the money collected is used by the government for four main purposes or the four R’s

Revenue

Government generates its income through taxes to spend on roads, bridges, army, schools, hospitals, legal system, salaries, pensions and law and order.

Redistribution

This pertains to social engineering which means taking money from rich sections of the population and distributing between weaker sections.

Re-pricing

This is done to discourage use of certain items like tobacco and alcohol.

Representation

This refers to the accountability of the government towards its citizens.

Arpit Shah

Arpit Shah (Expert)
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27 July 2015 Differences between Duty and Tax

- Both duty and tax are the revenues generated by a government for its effective functioning. Duty in broader terms is a kind of tax only. But there are differences between the two entities.

- Duty is levied upon goods only, whereas tax is levied on both goods and individuals.

- Tax is a term used in respect of income such as property tax, wealth tax, income tax etc, whereas duty is used in terms of goods only such as customs duty, excise duty.

- Duty is generally a tax levied on good going out or coming inside a country. Duties are sometimes referred to as border taxes.

- Higher duties are levied on some categories of products to discourage people from using them. Taxes are mostly progressive in nature

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Arpit Shah

Arpit Shah (Expert)
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27 July 2015 1) Tax is paid on the Income earned, Service rendered and Sales made during the year. For Eg : Income Tax, Service Tax, VAT / Sales Tax, Wealth Tax

2) Whereas the tax which is leveid specifically on goods is called Duty. For Eg : Customs Duty, Excise Duty

3) Cess is also a Tax. But in India the Cess which is collected is specifically utilised for the Education. For Eg : Education Cess, Secondary Higher Education Cess