Open Access Research Article
Tax, GST and Government - BY Khushbu Sangwan & Abhyaa Gupta
Published Paper
Article Details
TAX,
GST AND GOVERNMENT
Name of Authors: -
1. Khushbu Sangwan
2. Abhyaa Gupta
Name of the Institution
Centre for Legal studies Gitarattan
International Business School
Batch and course
2019-2024, BBALLB
Email and contact
ABSTRACT
Taxes
are the primary source of income or revenue for all governments worldwide since
they are needed for welfare programmes that support and contribute to the
state's balanced development. One of the most significant economic reforms to
the Indian economy since Independence is the goods and services tax, sometimes
known as the good and simple tax. The main intention of introducing GST
was to reduce black money and boost transparency among
government officials.
With
a decrease in transaction costs, trade and industry would progressively become
more competitive. The Goods and Service Tax (GST) rollout and the elimination
of interstate checkpoints are seen by the World Bank as the two most major
reforms that could improve India's manufacturing sector's competitiveness.
INTRODUCTION
“Isn’t
it appropriate that the month of the tax begins with April Fool’s Day and ends
with cries of ‘May Day!’?” Rob Knauerhase:
The
word ‘tax’ is derived from a Latin word, ‘taxare’ which means to estimate. In the first dynasty which lasted from 3000
BC to 2800 BC, ancient Egypt initially instituted taxation. According to
historical records, the Pharaoh would visit the kingdom every two years to levy
taxes on the populace. For the government to keep functioning and for the
maintenance of the nation's law and order, it needs funds. The government
requires money for welfare programmes to support and contribute to the state's
balanced development. Subsequently, taxes are the main source of income or
revenue for all governments worldwide.
India
is the largest democracy in the world and also it is a republican and socialist
nation with a federal structure being the central and state governments are
part of the framework. The government share foremost accountability for
handling the nation's expanding development demands, which are majorly taken
care by the taxes as taxes are the main source of revenue, to promote
economic growth and accomplish socio-economic objectives. It is pertinent to
note that a supporting law must be passed by the State Legislature or the
Parliament to support any taxes that are imposed for better effectivity.
Goods and Services Tax is
known as the GST; it was passed in Parliament on 29th March 2017
and came into effect on 1st July 2017. This is an indirect tax replacing many
indirect taxes in India (such as excise duty, VAT, services tax, etc)[1].
The idea of implementing GST was first recommended by the Union Finance
Minister of that time, P. Chidambaram in his budget speech in the year 2006-07.
Thereby, it was planned to initiate the idea of GST from 01 April 2010 but was
later enacted 7 years later by the present government.
Many
economists ascertain that the implementation of the Goods and Services Tax
(GST) is a major development in India's indirect tax reforms. GST has and will
significantly reduce the negative impacts of cascading or double taxation by
combining a variety of Central and State taxes into a single tax and opening
the door to a single national market.
Primarily
the enactment of GST would benefit the consumer since there would be a
decrease in the overall tax burden on goods, which is now estimated to be
between 25% and 30%. Also, it would help the consumer to have much better
access to information about the true cost of indirect taxes on goods and
services. Additionally, due to the complete neutralisation of input taxes along
the whole value chain of production and distribution, the introduction of GST
will also increase the competitiveness of Indian products in both home and
foreign markets. Hence, adding to the economic growth of the country with
aware consumers in the economy.
As
quoted by then Finance Minister Arun Jaitely, “The old India was economically
fragmented, the new India will create one tax, one market and for one nation[2]”.
Before GST, the tax used to be collected separately by the Centre and the State
which caused the actual taxpayer levy from paying the taxes and the burden of
paying the tax was shifted from one person to another person, to add on the
complication the tax laws were varied from state to state.
According
to the Income Tax Act of 1961, beneficiaries who earn more than the maximum
exemption amount shall be subject to income tax at the rate or rates set forth
by Finance law. A person, a HUF, an association, a group of people, a business,
an enterprise, a municipal authority, etc. can all be assessed and the entire
income of an individual depends on their residence status in India (Individuals
might be residents, non-residents, or non-ordinary residents for tax purposes).
"A
tax on products and services with value creation in every phase with a
comprehensive and continuous chain of benefits from service providers point to
the retailer level where only the end customers should face the tax,"
defines goods and services tax (GST), it is a destination-based
consumption tax levied on several production distribution stages of goods and
services. In addition to state and local taxes, entertainment taxes, excise
taxes, surcharges, and octroi are all combined in one tax. It is applicable to
the transaction value, which takes packing, commission, and other sale-related
expenses into account. Whether it be goods or services both are treated equally
under the GST, and throughout the supply chain, they are taxed only once before
being made available to customers, making it less complicated and keeping track
of double taxation.
HISTORY
Despite
having a long history, the tax had a very limited impact in the ancient
world. There were consumption taxes which were imposed in ancient Greece and
Rome. In terms of generating revenue, tariffs—taxes on imported goods—were
substantially more significant than internal excises. When it came to property,
taxes on the property would be temporarily imposed during times of war as a way
to raise additional revenue, these taxes were initially only applicable to real
estate, but they were eventually expanded to cover other assets. Transactions
involving real estate were also taxed. The tax laws of the Roman Empire made
distinctions between citizens and residents of conquered lands in Greece, where
free citizens had different tax duties from slaves.
Many
of these old taxes, particularly the direct levies, were replaced by a system
of "aids" and various required duties during the Middle Ages (most of
which amounted to gifts). Transit tariffs, which are levied on products passing
through a country, and market fees were the principal indirect taxes. In the
cities, the idea of a universal tax responsibility emerged; taxes on certain
foods and beverages were meant to be paid in equal measure by consumers,
producers, and businesspeople. The introduction of head taxes for the poor and
net worth taxes or, sporadically, crude income taxes for the wealthy occurred
during the later Middle Ages in various German and Italian cities. Land and
housing taxes eventually went up.
Much
more than taxes have impacted the Revolutions, wars have been significant in
influencing taxation. Many taxes, like the income tax (first enacted in Great
Britain in 1799) and the turnover or purchase tax (first enacted in Germany in
1918; Great Britain in 1940), was initially intended to be "temporary"
wartime measures. Similar to this, France, the US, and Britain all developed
the withholding technique of income tax collection during the Second World War.
Income taxes in various nations were changed during World War II from being
upper-class levies to mass taxes.[3]
Henceforth, the context of tax was similar to what it is today that is
generating revenue for the working of the empire then and the government today.
Even
before taxes made up a significant portion of the national revenue, they have
historically been a contentious political issue. The American colonies’
insurrection against Great Britain is a well-known example. In that uprising,
the colonists refused to pay taxes levied by a Parliament in which they had no
say, hence the slogan "No taxation without representation" began to
oppress the parliament. Another example is the French Revolution of 1789, which
had a significant impact due to the unequal distribution of the tax burden.
HISTORY OF TAX IN INDIA
India
had a formal tax established since the Mauryan period. The wealthier folks
paid 1/6th of their income in taxes. According to history, the tax was
scripture in Manu Smriti, one of India's oldest books, even before the Mauryas.
Later Mughal invaders brought their own revenue system with them. The infamous
Jizya was levied against the nation's non-Muslim residents, which was later
abolished by the third Mughal emperor Akbar, in 1579[4].
In 1860,
the British first imposed the income tax in India in the form we know
today. It was put in place to make up for the losses the government suffered as
a result of the 1857
insurrection.
The annual charge imposed on both earned income (Income is the amount that a person or company receives in
return for rendering goods or services) in the form of wages, salaries, or commissions
and unearned income, such as dividends, interest, or rent, is known as income
tax.
Progressive
income tax in simple words is the tax imposed upon the taxpayer on the basis of
his income that is if his income is less then, a less percentage is levied upon
him than the one with a higher income. This type of tax is intended to finance
a government's activities as well as more equitably divide the wealth among the
populace and act as a safety net during economic cycle changes. Personal income
tax and corporate income tax are the two main categories of income tax.[5]
Since
the Income Tax Act's enactment in India in 1886, it has undergone numerous
amendments and improvements. A new Income Tax Act was enacted in 1918 following
the First World War, once more to combat the lingering effects of the economic
destruction brought on by the war. Up until 1922, when it was replaced by
another Act, this income tax law was in effect.
Change
is the key to success, to be one the Income Tax Act was reformed once more
after 40 years after India had obtained independence from the
British. The current Income Tax Act was enacted on April 1, 1962, following its
adoption in 1961 including Sikkim, Jammu, and Kashmir, as well as all of India.
Under the regulations of the Central Board of Revenue Act, of 1963, the
Central Board of Revenue divided the two types of taxes i.e., direct and
indirect tax and established a separate board for direct taxes, known as
the Central Board of Direct Taxes.
GOVERNMENT AND GST
Goods
and service tax or Good and simple tax is considered to be one of the greatest
reforms in the Indian economy after the Independence. It was brought with aim
of removing black money and eradicating corruption from the government
functionaries promoting transparency. The Concept of GST is however not new to
India, but the mechanism of the GST Council is significantly unique, as India
is a quasi-federal economy GST council came with provisions which matched the
demands of the Centre and State resulting in the amalgamating seventeen laws to
bring up one that is GST.
GST,
as it is today, was brought into force during the reign of the Bhartiya Janta
Party, which once opposed it when Congress tried to implement it. As it is
believed it was the dream of the congress party, ironically it was then opposed
by Bhartiya Janta Party. However, whoever proposed it, now that it is in force
and it has been more than five years, it seemed to have faced various
challenges politically as well as economically in the practical aspect.
Every
coin has two sides; GST has its too, one where it seems to be promising in the
long run and another where it is technologically uplifted which creates
problems for those who are not prone to technology although it will be
accessible to all in the coming era as with use the usage gets easier.
COVID AND GST
Covid
19 pandemic affected not only India but the whole world leaving none, it did
not just destabilize the health sector and economy of not just developing
countries but also developed countries. As GST was introduced in 2017 and as it
completed its 2-year anniversary a few months later the whole country went into
lockdown except for the health sector which required governmental funds, funds
which are maintained via tax collection. Subsequently in its early GST was
tested by the pandemic situation. The government collects GST from the goods
and services offered but as the country was in lockdown it was difficult to
collect tax from these means.
The
places with higher tourism and travel offering services hit a steep fall in the
collection of the GST, as this is the service sector wherein everything came to
a halt and there were no services left to offer for the GST to be collected.
The manufacturing sector suffered as there was a suspension on the activities
of production, which disabled the GST collection on the majority of the goods.
However, the manufacturing sector contributes less to than the services sector
to the GDP and both sectors were affected by this global epidemic which knocked
out the GDP of the country[6].
The
government initiated new cultures such as Digital India Culture and other
aspects like work from home and online education system etc., such initiatives
kept the economy to not fall. The collection of the GST was extended and the
loan payments were deferred as the banks relaxed the customers from payment of
the loan amount. As they say, the test is on a rocky road and if you drive past
that then you will pass the test, on that same note it appears that with some
relaxation and initiative the government was able to keep the economy intact.
BENEFITS OF GST
With
expanding the tax base and enhancing taxpayer compliance, the GST is
anticipated to boost government revenue, and many other benefits will be and
are offered via GST some of them are as follows: -
·
By eliminating
rate arbitrage between neighbouring States and between intra- and inter-State
sales, uniform GST rates will lessen the incentive for evasion.
·
Compliance will
be made simpler and easier by the harmonisation of laws, regulations, and tax
rates. Through the GST portal, there would be uniform definitions, forms and
formats, and an interface, leading to efficiencies and synergies everywhere.
Additionally, this will end interstate conflicts regarding entry tax and
e-commerce taxation as well as multiple taxations of the same transactions. All
of this will also assist in lowering compliance costs and removing the need for
numerous records keeping for various taxes, both of which will result in a
decrease in the resources and labour used in preserving records.
·
The ability of
trade and industry to compete would gradually increase with a reduction in
transaction costs. The World Bank considers the Goods and Service Tax (GST)
rollout and the removal of interstate checkpoints to be the most significant
reforms that could increase the manufacturing sector of India's
competitiveness.
·
The GST is
anticipated to reduce the average tax burden on business and commerce, which
will lead to lower pricing and higher consumption, ultimately leading to
improved production and better industry growth. It is anticipated that domestic
demand would rise and that local enterprises will have more chances, leading to
an increase in employment nationwide.
DISADVANTAGES OF GST
As
we all know, the GST is changing how tax is paid, businessmen are now required
to hire tax professionals in order to be GST-compliant, and due to this added
expense of hiring experts, this will gradually raise costs for small
enterprises. Additionally, firms will now need to teach their staff members
about GST compliance, which will increase their overhead costs.
Only
companies with annual sales of more than Rs. 1.5 crore were required to pay
excise duty under the old tax system. Whereas now with the new tax system i.e.,
GST, businesses with annual sales of more than Rs. 40 lakhs are also required
to pay tax.
IMPACT OF GST
GST
being the regime was introduced to bring change in the present economic
structure which led to major and minor impacts in the economy, some are visible
today and others will be in the long run. The authors have attempted to analyse
the past and present situation elaboration is mentioned below:
1. Common man: So far since the last 5 years of
implementation of GST, it has been a win-and-lose situation for the common man,
as there have been certain complexity removal as well as there is heavy imposal
of tax on certain goods an services. Although a wide perception as per the
survey organized by the Local Circle of Consumer Affairs, the Local Circle
nearly 54 per cent of the people believed that the GST implementation has
enhanced the expenses of the household of the month nearly by 30 per cent[7].
However, initially the inflation which is observed in the short term will be eradicated in the long term.
2. Businesses: GST has helped the manufacturer is
simplifying the tax structure but at the same time due to it being a new regime
hiring professionals for them to understand the concepts of the same increased
their short-term cost however it will have a good impact in long run.
3. Government revenue: For the government, GST is going
to be a good income generator in long term, despite all the challenges faced
today and in the past just because of the change implemented, and change is
always difficult in the beginning.
4. Real Estate: Real estate is considered to be the best
investment as it never disappoints in long run and with the introduction of GST
the stamp duty is excluded hence the extra cost which was incurred later with
the property will be reduced.
CONCLUSION
GST
is a simplified tax reform, it has had a long and refined journey. Initially,
it will be difficult for all the sectors to cooperate accordingly but
eventually, it will be observed as a boon in all the sectors of the economy. It
is just not India, it has already been implemented in many other developing and
developed countries, long before India. A simplified and single tax form has
escalated the development of the country with increased GDP in the longer run.
[1] CLEAR TAX, Goods &
Services Tax GST (India) What is GST? Indirect Tax Law Explained, (Jan 11,
2022), available at: https://cleartax.in/s/gst-law-goods-and-services-tax (Last visited on Oct 17, 2022)
[2] INDIAN EXPRESS, GST in
reality is ‘Good and Simple Tax’: Top quotes from GST rollout launch, (July
1, 2017), available at https://indianexpress.com/article/india/goods-and-services-tax-rollout-narendra-modi-arun-jaitley-pranab-mukherjee-parliament-4729802/, (last visited on Oct. 15, 2022)
[3] BRITANNICA, Maria S. Cox and
Charles E. Mclure, History of Taxation, https://www.britannica.com/topic/taxation/Principles-of-taxation (last visited on Oct 22, 10:53)
[4] WIKIPEDIA, Jizya, available
at https://en.wikipedia.org/wiki/Jizya, (last visited on Oct 12, 2022)
[5] LEVARE, History
of Taxation in India, https://www.levare.co.in/articles/history-taxation-india
(last visited on oct 23, 10:14)
[6] Dr. Arundhati Roy Biswa Bhusan, Impact
Of Covid-19 On Goods And Services Tax (Gst) With Respect To Micro Small And
Medium Enterprises (Msme) Sector, Palarch’s Journal Of Archaeology Of
Egypt/Egyptology 17(9). ISSN 1567-214x, (Sep 17, 2020)
[7]
SAGINFOTECH, Sourabh, GST impact on common man( Dec 29, 2021) https://blog.saginfotech.com/gst-impact-on-common-man
(last visited on Oct. 26, 2022)
Article Information
Tax, GST and Government - BY Khushbu Sangwan & Abhyaa Gupta
Authors: Khushbu Sangwan, Abhyaa Gupta
- Journal IJLRA
- ISSN 2582-6433
- Published 2022/10/31
- Volume 2
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
- Access Open Access
- License CC 4.0
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