MEANING OF TAXING STATUTES:
A taxing statute is a fiscal statute that imposes taxes on various transactions thereby imposing a pecuniary burden on the taxpayer involved in such transactions. Some examples of fiscal statutes in India are Income tax, sales tax, service tax, wealth tax, etc.
There are some essential components of taxing statutes. First is the Subject of the tax. For example- income tax, service tax, sales tax, etc. Secondly, the taxing statutes mention the person who is liable to pay the tax. Such a person can be an individual or a company. Thirdly, the taxing statute must mention the rate at which the tax is to be recovered.
It must be noted that if there is any confusion regarding the above-mentioned essential components of a taxing statute then according to the law there would be no tax imposed.
INTERPRETATION OF TAXING STATUTES:
The legislature which makes the laws cannot anticipate changing socioeconomic conditions. Thus, Courts interpret the laws made by the legislature according to the changing needs of society. Moreover, taxing laws are quite complicated and written in a complex language beyond the understanding of a common taxpayer. Thus, Courts settle various disputes regarding the meaning of the words, clauses, and provisions of fiscal statutes.
STRICT INTERPRETATION OF TAXING STATUTES:
As fiscal statutes impose a financial burden on the taxpayer they must be construed strictly. The plain, clear, direct, and natural meaning of the words used in the taxing statute must be interpreted. There should not be any kind of presumption or assumption by the Court for imposing any tax. A tax can be levied only when it is explicitly mentioned in the statute. If there is any doubt as to any provision of a taxing statute, it must be resolved in favor of the assessee. The Courts are not supposed to give a certain meaning to any ambiguous word used in a taxing statute presuming it to be the intention of the legislature.
The Courts must remember that taxes are a monetary burden imposed on the taxpayer by a sovereign authority. Thus unless and until imposing a tax is explicitly and clearly mentioned in the law no tax should be imposed. There can be no presumption of tax by the Courts. If there is any ambiguity regarding any provision of a fiscal statute then it is the duty of the Legislature to rectify the unclear provisions by passing amendments. Tax cannot be levied on the taxpayer by implication.
The Principle of equity does not apply to taxing statutes. Clear words of the taxing statutes must be given effect without considering whether they are just or not. They cannot be given logical extensions. Thus, while construing fiscal statutes strict letter of the law must be followed. The courts can neither extend the language of the taxing statutes in favor of the Revenue nor can it narrow down the language in favor of the assessee.
Unless the statute’s language provides so clearly, a taxing statute cannot be given retrospective operation. Courts have to strictly interpret taxing statutes to prevent tax evasion.
STAGES OF IMPOSITION OF TAX:
There are three stages of imposing a tax which are as follows-
a. Declaring that a particular person on the property is liable to pay tax. This stage involves the charging provisions of the act which provide the extent of the tax and the subjects on whom the tax is to be levied. Strict and direct interpretation is to be given to the charging provisions. Nothing can be inferred to carry out the intention of the legislature for making the law. The courts cannot extend the meaning of the charging provisions to cover subjects that on the face cannot be included.
b. Assessing the amount of tax to be paid by the person on whom the tax is levied.
c. If the person on whom tax is levied avoids or ignores paying the tax then the method of recovery of the tax from him. If the assessee shows that all conditions required to claim exemption from tax are fulfilled then he shall be entitled to claim exemption.
The legislature, while drafting taxing statutes, must use words that clearly cover all the subjects it wants to be taxed. As the imposition of tax levies is a pecuniary burden on the taxpayer the Courts while interpreting taxing statutes must not make any assumptions regarding the intention of the legislature. Taxing statutes must be strictly interpreted word for word without any addition or subtraction just to fulfill the purpose of the Act. Thus, the Courts have to maintain a proper balance by protecting the interest of the revenue by preventing tax evasion and at the same time not burdening a taxpayer by giving wider meaning to ambiguous and uncertain words of a taxing statute.