India’s Taxation – Challenges and ways to Improve

Problems with taxation in India –

• Highly complicated with many exemptions. Eg- corporate tax.

• Our laws are drafted especially the IT Act with subjective and ambiguous words like believe, public interest, reasonable, etc. too many provisos which make exemptions to general principle.

• Parthasarthy Shome committee has observed that our policy of giving targets to IT officers creates a burden.

• Finally, tax terrorism is a major concern.

Justice Wanchoo committee had said that for every 1 rupee, GOI wants to levy a tax of 1 rupee 5 paisa.

Taxation in India - Challenges and ways to improve it
Ways to improve taxation in India-

• Reduce corruption – more citizens believe that public resources are not wasted, the greater their willingness to pay taxes

• Property taxation system needs to be overhauled. Property taxes are especially desirable because they are progressive, buoyant, and difficult to evade. They can be the foundation of local government’s finances. • Rationalization of tax exemptions to increase direct tax base.

• Introduction of GST to solve the problem of cascading of taxes and to improve tax collection efficiency.

• Phasing out of corporate tax exemptions coupled with a lower corporate tax rate (25%). This will simplify tax structure, prevent litigation and will boost ease of doing business.

• Reduce tax terrorism

• Use technology for easy compliance


GST is a destination based indirect tax that will subsume the central and state taxes like VAT, Octroi, Sales tax, Luxury tax, etc. it is touted as the biggest tax reform in independent India.
• GST will be 122nd constitutional amendment.
• Entry no 97 in the union list under article 246 will be amended
• Article 246A to introduce CGST and SGST with concurrent power
• Article 269A for IGST
• Article 279A to create GST council. The council will have voting rights 2/3rd for states and 1/3rd for center. Resolution will be passed only after 3/4th.
• CGST, SGST and Integrated GST will be introduced

Advantages of GST

• Predictable and simple tax regime

• Single unified market among states

• Single IGST rate leading to seamless trade across states. A report by CIIPWC states that GST can bring down the logistics cost drastically.

Currently it is around 13-14% of value of goods

• Less complication of tax laws resulting in lesa burden on companies of cascading taxes

• Increase in tax and tax:GDP ratio. NCAER 1.5-2% GDP

• Boost economic growth and foreign investment due to tax system being in line with international standards

• Reduction in black money formation due to better compliance.

• 4 slab tax structure is good.

Drawbacks of GST-

• Data privacy in GSTN

• Federalism: States have virtually given up taxation powers. It is unduly weighted in favor of the Centre that can cause conflict between Center and states.

• Not all pervading- Petrol and alcohol are kept outside GST. They are a major source of revenue for states.

• Rewarding destination states: GST, by nature, is a destination-based consumption tax.

• Disparity in IT connectivity: GST aims to achieve a tectonic shift to a singular digitized compliance set-up.

• Problem for local bodies as they lose on local taxes

• Integration of state revenue services with central ones will be problematic

• GST Evasion is high

Video lectures on taxation in India