RUKMINI BHATTACHARJEE
ASSISTANT PROFESSOR FROM AMITY UNIVERSITY KOLKATA
Abstract
A tax is a compulsory exaction of money by public authority, for public purpose, enforceable by law and they are not for payment of services provided. Indirect tax is something that a manufacturer pays to the Government of his country. The burden of tax payment is on the end consumer as they are the ones purchasing the products. Indirect tax is a tax that can be passed on to another individual or entity. Indirect tax is generally imposed on suppliers or manufacturers who pass it on to the final consumer. There are many indirect taxes applied by the government of India. Taxes are levied on manufacture, sale, import and even purchases of goods and services. These laws aren’t also well-defined Acts from the government, rather orders, circulars and notifications are given out by relevant government bodies to this end. As such, it can be cumbersome trying to understand every feature of indirect taxes in India. Indirect taxes are touted to be streamlined following the introduction of the uniform Goods and Services Tax (GST).
Tax reforms are usually initiated for changing the overall structure of taxation to increase revenue generation and from recurrent taxes on residential property and less from income taxes. Major changes in tax systems of countries with a wide variety of economic systems and levels of development are imperative. The purpose of such reforms may vary from one country to another but emphasis on reforms is widely guided by the development strategy and philosophy of changing times. In many developing countries, the most prominent reason for tax reforms has been the need to enhance revenues to meet impending fiscal crises. As Bird (1993) states, “…fiscal crisis has been proven to be the mother of tax reform”. One of the most important reasons for tax reforms in many developing and transitional economies has been to evolve a tax system to meet the requirements of international competition (Rao 1992). The transition from a predominantly centrally planned development strategy to market based resource allocation has changed the perspective of the role of the State in development. The transition from a public sector based, heavy industry dominated, import substituting industrialization strategy to one of allocating resources according to market signals has necessitated systemic changes in the tax system. There have been major changes in tax systems of countries with a wide variety of economic systems and levels of development during the last two decades. The motivation for these reforms has varied from one country to another and the thrust of reforms has differed from time to time depending on the development strategy and philosophy of the times. In many developing countries, the immediate reason for tax reforms, has been the need to enhance revenues to meet impending fiscal crises. As Bird (1993) states, “…fiscal crisis has been proven to be the mother of tax reform”.
Goods and Service Taxes (GST) is a significant part of tax reforms in India and has made indirect taxation on business irrespective of size of the business and change the way the economic functions. The Goods and Services Tax was created by the 101st Amendment of the Constitution of India. The Act replaced 7 indirect taxes and duties and 13 cesses created by the Centre and 7 indirect taxes and duties by the states. It promised a common market and displacement of the inspector-raj. GST is IT driven, thus promises transparency and efficiency and curb corruption and leakages. GST Council is the federal dispute resolution body. An amendment was also made to provide compensation to the states for the loss of revenue on account of the GST legislation. The distribution of GST among the Centre and the states is guided by the amended Article 270(1A). Under the amended Article 269A (1), IGST can be levied and collected by the Union and apportioned between the Union and the states as provided by the Parliament by law and based on the recommendations of the GST council. The Centre cannot levy any surcharge on the GST to appropriate it for the Union’s purposes. The amended Article 279A provides for the creation of a GST Council. The GST council examines issues related to GST and makes recommendations on parameters like rates, exemptions and threshold limits. The Council functions with the Union Finance Minister as the Chairman with the state Finance Ministers as the members. Every decision of the Council shall be taken by a majority of 75% vote. The Council functioning under Article 279A shall aim to create a harmonized tax structure and common national market. The Council needs to develop a mechanism to adjudicate disputes arising between the governments and on the basis of its recommendations. The GST (Compensation to States) Act,2017 provides the Parliament may by law on the recommendations of the GST Council may provide compensation to the states for the loss of revenue owing to the imposition of the GST. The financial year 2015-2016 is to be taken as the base year for the calculation of the compensation to the states. The payment to the states is made from the collections in the GST compensation fund. By 2018, it was reported that of the 193 nations with UN membership, 166 nations including all OECD member countries except the United States of America had implemented the VAT on goods and services in one form or another. Developing countries mostly replaced their cascading domestic trade taxes with the VAT to reduce distortions or as a measure to recoup revenue lose which may result from the reduction in tariffs on joining the WTO. The GST was adopted to function as an appropriate instrument to offset revenue losses from reducing tariffs. In most of the countries the transition to VAT/GST has been relatively smooth because the tax was essentially replaced by the central government. Even in the federal countries like Australia and Germany it was levied at the central level.