Pubilc nance

Accordingly,it Loe
M percent of GDPin
reduced theto extent of fiscal
1990-91 6.1 per cent in dcficit 799
z stabilisation
necessitates containing the fiscal 2008-09. Although the mte of is qute heavy but coverage of such
per of GDP
cent deficit at taxes is not very widetaxen in the
With lo make countiy-
Reduction in Public
Debt. the
been trying to reduce theRecently, the Central structure purpose necessary evaluationof of Endian
L it would tar
of be better to cconsider features
the,
Atinely external
debt as burden of
per ccnt of public debt. the country in the
the structure
tax

1990-91 gradually declined to 4.9GDP which was 5.4

per cent in 2008-
1. followinandg manne
Built-in lextbility buay ancy. Elasticity in tax
The
internal,debt as per cent of
GDP has
declined from 48.6 sIructu
revenue
re represents its built-in flexibility and increase in ax
in 1990-91 to 37.9 per cent in
loan or liabilities as per 12008-09.Similarly, the total
apding cent in 2003-04 to cent of GDP also declined
changes simultaneously with increase in national income through
in tax rates and ex
expansion of tax base .represents
per 58.9 per cent in Duoyancy of tax structure. The National Institute of Public Finance
Disinvestment in Public 2008-09. and Policy has estimated both the elasticity and buoyancy of
& Sector. Another important fiscal Sructure in India for the period 1970-71 to 1983-84. As per this
reforms introduced by the
sivest the
shares of the Government of India is to
public sector enterprises. The
Study it is observed that the elasticity of Indian tax structure was
less than one, i.e., 0.96 and
Aeamentbas disinvested as part of its i.. 1.21. Moreover, its buoyancy was greater than unity.
stake in 39 the study observed that the tax revenue of
since the disinvestment process began in 1992. selected States was more elastic and buOyant than that of the centre.
Nls around Till 2018-
73,47,439 crore through disinvestment Among
i has raised all the taxes Union Excise duty was having its highest degree of
shareof PSUs. In the mean time, the
estuleda Disinvestment has buoyancy, Le., 1.51. But considering the requirement of financial
Governmenthow to
t
Commission
to advise it on resources necessary for financing various socio-economic project,
disinvesting the shares of PSUs. The Commission. in the tax structure in India may be considered as inadequate,
sfst three reports has given its recommendations on 15 PSU: inelastic and also suffering from lack of buoyancy.
50 refered to it. The Commission submitted at least eight
2. Narrow Coverage. Another important feature of Indian
qrts covering 43 PSUs and also undertook diagnostic studies tax structure is that it has anarow coverage of working population
iMOmendations.
1998-99 in respect of these undertakings for giving in its tax net. As per Planning Commission's estimates, direct
taxes cover only about 1 per cent of the working population of
the country. Likewise, excise duties on textiles, tobacco and
17A. INDIAN TAX STRUCTURE other manufactured articles are also being paid by a very small
1B1. Introduction of Tax Structure in India section of total consumers especially those who are using only
better varieties.
bian Constitution has made a provision for the introduction of 3. Equity considerations. Indian tax structure also violates
sieral tax structure. The constitution has made a detail provision the equity consideration of taxation in some respects. Although
be imposition of various types of taxes both the Central Indian tax structure as a whole is considered as a progressive
premment and the State governments. The constitution has made one and the Indirect Taxation Enquiry Committee (1978) also
ipovision for division of power for levying taxes between the concluded that indirect taxation, in totality is progressive but if
Catre and the States in most unambiguous manner. Taxes are we look deep into the structure then it is observed that the same
ihin the purview of Central Government which account for violates the cannon of equity. Taking the poverty line concept of
taiy 50 per cent of its revenue, similarly taxes like sales tax and the planners we can conclude that the burden in indirect taxes in
ie etcise duties, agricultural income tax, land revenue and 1993-94 was quite heavy on the population below the poverty
dletainment tax are within the purview of State Governments. line.
One taxes are again Jevied by the Central Government and 4. Multiplicity and haphazard. Both the direct and indirect
sof such taxes are divided between the Cenire and taxes in India are sutfering from multiplicity in its application
bVemments. Taxes like union excise duties and incom and thus the system is quite haphazard. Direct taxes like wealth
of such taxes are tax may be placed in the
tax, gift tax, estate duty, capital gains
ared wibetween
thin this category. The proceeds
the Centre and the States as per the
taxes like
same category. Thus these taxes may be integrated into a single
toy system, In order to streamline this system, the govermment
tomnendations of Finance
Ranp duty and excise Commission. Some other
duties on drugs and cosmetics are levied
the Central 1 Government but the responsibility to collect such
has already adopted MODVAT system in a phased manner.
5. Lacking administrative elficiency. Tax system in India
nd
assigned on the state governments. does not have much administrative efficiency. Both dirert
procedure are highly complex. This has
s jndirect taxes and their
32. Structure and
Features of Indjan Tax
aia is Evaluation a broad-based and extensive tax structure.are
led unscrupulous
elements in the
avoid tax. In order to
realise
administrative
varjous
efficiency
tax procedure to evade and
objectives through this tax
of the system has declined.

aly
s
maintaining
tyoes of being levied in the
country which
taxesDetween direct and indirect taxes. In countries.
are terms of
system, the
Moreover, misinterpretation
also resulted in
of tax laws by the tax
widespreadl corruption in the tax authorities,
departments.
nuctculraes ifIndia
ied is cconsidered as one taxed has
of highly
800

lax structure and to recommend a

\ndian E
6. Predominance of Indirect Taxes. In India. the indirect cxIsting
laxes are playing a predominant role and the direct taxes are
playing a secondary role. Taxation revenue collected by the Centre
of both the direct and indirect tax compr
submitted its interim report in February system. The
ehens
1992. In this
and States are coming from direct taxes in comparison to that of Committee stressed the importance of lower rates
SO per cent in Japan and Australia. Thus the major anmount of tax narrower spread between the entry rate and the
revenue collected in India are collected from indirect taxes.
7. Inter-sectoral imbalances. Tax structure in India is
rate and fewest special exemptions and
indirect taxes the Committee deduction
recommended aa
maximum
sufering from inter-sectoral imbalance as the income from
agricultural sector is not taxed properly. Rich farmers inspite of
general level of tariff and in the dispersion of
abolition of end-use exemptions and
Teductx
tar1ff rates
having a huge income are not included within the purview of philosophy guiding these recommendations wilk The k:
government has ful:support is to cut
concession.
Indian tax structure. Thus the impact of taxation on the various
sectors are not at all balanced. through the
welter of o
changes which have been incorporated over the last
8. Heavy incidence. Incidence of taxation is very heavy in serve narrow objectives and restore the
India. According to a study made by Indian chamber of function of generating revenue in an cfficient and equitakl.
system to its
commerce. Calcutta., the incidence of taxation, both individual The report also stresses the need of introducing Sabit
and corporate, is the highest. It is observed that in India 0.5 per rationality in the tax structure. The committee wantea
cent of the population bears the entire burden of personal tax the tax system and tax laws quite simple. The Commit
and 0.2 per cent of the population normally bears 80 pr cent of of the view that the present system of tax administration
the total tax burden. The corresponding percentages in U.K. and modernised and tax enforcement must be improved consi
U.S.A. were 39 per cent and 31 per cent of the total population
respectively. The Chelliah Committee recommended the fo:.
measures in respect of particular taxes :
Considering all these above mentioncd features, Prof. Kaldor
described the Indian tax system as inefficient and inequitable. 1. The direct tax system must be made more effestie
for that income tax regime should have lower r
Suggestions for improving the tax structure laxation with a narrower spread between entry ne
Considering the shortcomings of Indian tax structure, the maximum marginal rate and should con
following measures may be suggested for its improvement minimum of tax incentives.
1. Predominance of indirect taxes should be streamlined
2. The system of subjecting in income of both partnec
and higher reliance should be given on direct taxes.
firms and the partners to taxation resulted in dy
2. Steps must be taken to extend the coverages of taxes by taxation and thus it should be avoided.
spreading the tax net for attaining equity and also to 3. In order to improve the present tax on long te
raise the amount of revenue.
gains and to adjust it with the inflation that hav
have ocu
3. The regressive character of the Indian tax system must over time, a system of indexation is to be adoxe:
be modified so as to reduce the burden of such taxes on
sort out the problem.
the poorer sections of the society. Taxes like excise duty 4. In order to make a distinction between product1e
on necessities, sales tax etc. must be modified.
4. Tax administration should be tightencd to plug the non-productive wealth for levying wealth tax. prod
loopholes arising out of leakages and evasions alongwith assets like shares, securities, bonds etc. sheulk
exempted from the purview of wealth tax.
streamlining of the tax collection machinery.
5. The rates of direct taxes like income tax, corporation 3. In respect of custom duty of report recoml
tax at the higher level must be reduced to encourage the reduction in general tariff and reduction in the disge
tax payers to come within the tax net and also for in tariff rates and rationalisation of the system. I
providing additional incentive for increasing investment. suggested that reforms in this respect should be p
6. Taxes of capital gains on urban land values, rentier 6. In respect of excise duties, the report reco
income, income from speculative activity and other switching over to ad-yalorem rates on a nu
incomes must be rescheduled to tap the scope of particles in order to ensure buoyancySuggested
in reve kt:
additional taxation. result of increased prices. The report:
the specific rates (where it is retained) e
7. Tax assessment procedures for both direct and indirect
taxes must be streamlined so as to encourage the tax considering inflationary rise in prices. Ren
payers approach the tax officials instead of evading Interin
A number of suggestions contained in the budzet &
or avoiding taxes illegally. Chelliah Committee were implemented in 1992 tar,«
17.8.3. Tax Structure Reforms : Report of Chelliah these changes included changes in income tax, wealth
1993.94h
gains, excise duty. import duty etc. Againper in
recommer
Committee on Tax Reforms some other changes were incorporated as
In August 1991, the Government set up a Tax Reforms Committee werrm
of Chelliah Committee Report and these changes
under the Chairmanship of Dr. Raja J. Chelliah to examine the the area ofexcise duty, custom duty ee.
 801

ndianPUblicFinance
Such
personal assets
applicable to all sccurities. The
Tax Measures
and Reforms 1991-92 to Which Was earlicr shares and other scd t o 5
deposits, tax was rai
17.8.4.1995-96 as bank levy of wealth
threshold hmit for
the taN System as a whole has been one of the key
were 5I.75
Retormin the structural reforms initiated since July 1991. These
lakh.
income tax, which cent
corporate and 575 per
ekeentshave
o encompassed both direct and indirect taxes and 5 The rates of widely held company unified and
retorms towards a tax structure which is simple, relies on per cent for a company have been inclusive of
widerer base and better enforcement and for closely held these rafes are
rates with a per cent, All only in
m r a t etax
of equity and I efficiency. Substantial progress reduced d to 46 Surcharge Is leviable
thee
objectives
a 15 per
cent surcharge. above
?75.000
e
Ashenachieved this regard in the past five years. companies having income corporate
years, a number
of structural changes case of per cent surcharge the rate of as the
past five Without the 15 the same
Over the indirect taxes were undertaken, Unlike 40 per cent which is Long-tern
and tax would be taxation.
Neringboth direct system these changes rate of persoal
elated attempts to modity the tax
carlieriso of a medium term programnme tax reform. They maximum marginal domestic companies was reduced
capital gains tax on
seRepart a
move towards tax structure which is not only cent.
geared to from 40 to 30 per was reduced
seC also provides the incentives and sienals companies (branches)
andd moderate but conpetitive and Tax rate on foreign There is no surcharge
internationally
cent to 55 per cent,
simple 6.
stent with developing an from 65 per
The budget for 1995-96 continued the companies.
namic cconomy. lower rates and greater buoyancy. on the foreign in
infrastructure
d
on simplification, tax holiday for investments
eaphasis
Five year aiports, ports and mass
1991 have helped in correcting
Oserall tax reforms since July revenue
7. bridges,
facilities (highways, distribution
source. Direct taxation power generation and software
mhalance in the structures of ).
rap1d transport and electronics hardware and
equitable and efficient form of raising revenue. Prior backward states
most direct taxation did not
is thee the realm of parks were allowed.
neforms high tax rates in
noteworthy that the share of direct
ld high collcctions. It is to an estimated Indirect Taxes
2.1 per cent in 1990-9l B. Reforms in reforms were made in
respect of
rs in GDP rose from taxes in the Following
Again the share of direct Custom Duties.
*0 ner cent in 1995-96. per cent in 1991-92 and 1995-96 :
Centre rose from about 19 dimension custon duties during
in India and in
ss tax revenue of the Other were inordinately highprior to reform. A
per cent in 1995-96. duties
1990-91 to an estimated 29 customs revenue in GDP and their 1. Import
300 per cent
s the drop in the share
of healthy several cases more than of customs duy and
was

the gross tax revenue for Centre. This is a phased reduction in the peak rate since
contribution to efficiency. budgets
of the five
of equity and undertaken in each
trend from the point of view introduced in India custom duty was reduced
tax Reforms accordingly the peak rate of per
Following are some of the 85 per cent in 1993. 65
to 110 per cent in 1992,cent in 1995 with exception of
irom 1991-92 to 1995-96. cent in 1994 and S0 per beverages, dried grapes.
A. Reforms of Direct
Taxes passenger baggages, alcoholicbearings.
of income tax almonds and ball and roller
exemption limit for the levy
1. The initial 22.000 in 199| to 50,000 in 1998.
The import duty on capital goods for general projects
was raised from also reduced was 85 per cent prior to
reforms
for income tax were and machinery which
The number of slabs of personal unified for nearly 80 per cent of
maximum marginal rate inclusive was brought down and
Reduction in customs
from 4 to 3. The from 56 per cent, of
machinery, at 25 per cent in 1995
Income tax was reduced machinery to 20 per
duty on power projects and related
surcharge. to 30 per cent. to nil. This was
presumptive tax (lumnp-sum)
for small cent and for fertilizer projects ferrous and non
k. The system of operators was accompanied by lowering of duties on
and small road transport 1995.
Iraders, retailers ferrous metals to 35/40 per cent in
introduced. been brought down to
to widen the 3. The number of duty rates have
provisions were introduced present.
A number of taxation for small 12 (including nil rate) at
included presumptive
tax base. These scheme for persons engagcd Excise taxes. Following reforms were made in respect of
business, estimated income plying, leasing or and1995-96
civil construction, excise taxes during 1991-92
n the business of deduction at source introduced on excise duties
1. Switch over from a system where
ng of trucks, tax deposits income in respect
of
were specific and numerous and varying in nature with
erest income on term professional fces and host of a large number of cxempions to one largely based on
units of mutual funds. ad valorem basis with lower duty rates and exemp
contracts. form of
savings in the tax, tions.
strengthened. The wealth
*. The incentive structure To
financial asset has been
802
Indian E
Ambit of MODVAT (ax credit for taxes paid on inputs) countrics and became a key source of
revenue to the
The spread of VAT throughout the worlddis
was extended to capital goods, specified quality control.
testing. pollution control and R&D cquipment, POL and
broadly ba.
fact that it has been able to raise morc revenue than

spun yarn made from fibres. it replaced.

3. Switch over from specific to uniform ad valorem rates But introduction of VAT in federation like India
easy task. Bird and Gendron and
of 10 per cent on all petroleum products with the
exception of motor spirit. acknowledge that there is no perfectly Peggy Muvgta
4. The number of duty rates have been brought down to the problems of indirect taxation of
inter-stsatateisfsales
actoryin fedwj
10 (including nil rate at present). Fiscal economists normally justify VAT on he
Service Tax. For the first time, service tax was introduced three groundsa) it is a neutral tax (b) it removes c
and (c) it achieves zero rating of experts. These are
by imposing a 5 per cent tax on amount of telephone bills.
Premum payments for non life insurance and on commission/ good if VAT could be inroduced in pertect manner
brokerage charged by the stock brokers. make common mistake comparing VAT with
Overall. tax reforms in India since Julvy 1991 have helped in lax, or sale tax or excise duties. One of the immostperfect
and of quoted expert on VAT, Mr. Allan A. Tait has cauti
auther
correcting the imbalance in the structure of revenue sources. The readers against such dubious comparison. While
Share of direct taxes already rose from 2lper cent in 10o0 o1
to 2.9 per cent in 1995-96. The share of direct taxes in the gross assessment of imperfect VAT, we find that much of t
tax revenue of the Centre has also increased from about 19 logised so frequently vanish both in theory as well a:
per Indian context. I1 the VAT Is introduced in most evd
cent in 1990-91 to an estimated 29 ner cent in 1005.05 The
where all the
dggregate tax collection during 1995-96 recorded a hefy inerence imperfect manner., it may lead to a situation
of 27.4 per cent over the previous year's collection. of neutrality. removing cascading improving expor
During this
period increased tax compliance and widening of tax base titiveness become unreal and unattainable. India mav facs
rohlem of VAT is to be introduced in diferent states wjth
persisted.
imperfections.
The tax reforms introduced in India are to continue with
more and more new measures to be incorporated in near future. In the mean time, different states are claiming to fol
The country is now looking for the formulation of simple and per variety of revenue neutral rales ranging between 185 :
cent. VAT is not certainly suited for proper administrit
transparent tax laws. In this direction, the Central Board of Direct
Taxes (CBDT) has called for withdrawal of all the concessions the number of rates so adopted are many.
as the only reform prescription for devising a simple and Already 125 countries including China and Sri Lanka
transparent tax structure. The CBDT is of the opinion that "the adopted VAT, which is considered as a moden system of tatear
ideal tax structure would be the one which is simple and easily Value Added Tax (VAT). The most comprehensive
administrable and where, tax exemptions are gradually phased theoretically appealing way of domestic indirect taxation i
out...... Rewriting of Income-tax laws is the most important step Value Added Tax (VAT). A full fledged
VAT is, in essence
in the ongoing economic reforms." ad-valorem tax on domestic final consumption levied
Under this present trend of growing tax reforms, if the current collected at all stages between production and the point of
trend of increased tax compliance and widening of tax base sale. At each stage the tax is conined to value adäition whit
persists, the direct tax revenue will double within next two years. market value of sales minus purchases. The "invoice metd
17.8.5. Value Added Tax (VAT) in India value added taxation is usually adopted because it has the pr
The value Added Tax (VAT) is normally levied on the added of capturing taxes evaded or missed earlier in the prodac
chain. The VAT simultaneously achieves these two objekim
value of goods in various processes of its production and taxing sales at every stage of production but alloWE
distribution. As for example, the raw materials after necessary
processing has been converted into final goods and these deduction of taxes paid on purchases. The producer, ther
pays the Government only the net amount or the a
manufactured goods are then channelled through wholesale and
retails outlets for reaching the final consumers. At all these stages, added, as verified from the purchase and sale invoices. E
some element of value addition takes place. Thus value added tax
the due tax has not been charged on any of the purchaseu
nere would be no invoice for it and a deduction wo
is a tax levied on the value added to the product at all these unavailable. Therefore, the missed tax could be recaptur
stages.
sO
poor e India with its large unorganised I
Valluue Added Tax (VAT) was first introduced more than the VAT has an additional advantage
years ago for bringing fundamental changes in the indirect tax sales tax. As the VAT is collected at every slage of produ.
structure. It also remained confined into a handful of countries laxes which are missed at one slage can in principle
until the 1960s.Today it has been implemented in more than 125 at a later stage. Considering these advantages., a

1. Allan A. Tait, VAT-Intermational Practice and Problems, 1991

 803
Finance
effective
theretore. have alrcady SWitched over from turmover. ay of
, the value inplementation of VAT was standing
Hholesale taxes to added tax.
implenentation
national
and
Ina federat set up. there are three possibilities for a solved hy introuCinz
applicab1ity of
sive nationalVAT. VAT Could be a
owever, the problem can be and reducing
rates
ehensi
Central levy. In
rates would be levied and controlled by the level uniform policy relating to the fornulated for rnedicnes
Centre. be
VAT. Thus an effective policy mustit essental goods,
sse,the
would be shared by the Centre and the States of price rise
of
country a
lleetion unfavourable impact that as the
purely state levy where the Centre completely
be a field of donestic Can be stressed in this regard
wine ctc. *it
indirect taxes. Thirdly, there the price of petrol, meaningful
fromthe become successful in keening of VAT in a
policy
hdw system of Aual Centre-State VAT with well defined certain limits by enforcing the rate same
ns aof responsibiliti think why the medicnes
a manner, so there is no reason essential goods,
of
SYstem gaining popularity the world over with
was should not be applicable in respect
VAT countrics already adopting i. Such nations included and commodities for mass consumption drafted in
countries 1ike Bangladesh and the new acts. it should be
developing Malaysia. But 1nus while framing controversy in respeCt
.VAT was a highly complicated system there was a nced it does not create any
aucn a manner that simple princIple
sinethe in different states, Here the
iora massive educational campaign before it was actually of its interpretation economists had not been
USA South
Korea had followed a massive recommended by Kelkar and other Act also
introduced. introduction as
Even the various terns contained in the
its
arional campagn belore
he experience of other counties in introducing the VAT
followedd so
differ widely.
far.
Central Government has
indication, both states and consumers bave no reason to Compensation Formula, The and help
states for any revenue loss
iar the ncw
tax regime. promisecd to compensate all implementation of VAT.
system for the
mState Finance Ministers' mecting held on 2nd December. build a computer network compensation for revenue loss, if
Comniillec of Finance Ministers
s06 1o discuss the reports oI the States would get 100 per cent the loss would be
compensated
Sales Tax Reform and also of the NIPFP reached
a broad any, in the first year, 75 per cent of would be made up
Added Tax (VAT) in a in the second year. 50 per cent of the losses
nsensus on introduction of the Value
Aued manncr after adequate preparation by individual states. in the third year.
State Finance Ministers which
The Finance Ministers
rs also agreed that a monitoring committee The Empowered Committee of
VAr April I. 2005 finally implemented
the
nnsisting of the State Finance Ministers be set up to monitor decided to implement by
2005) in 20 states.
implementation of agreed tax reform measures and review
the
the VAT as per the promised deadline (April.
four times in the last
seps taken for the introduction of VAT. After missing the deadline for more than
implemented the VAT
Efforts 6 years, the Empowered Committee finally
17.8.6. Empowered Committee on VAT and its as per its revised deadline.
India formed an
In November 1999. the Government of
smpowered Committee with Sri Ashim Dasgupta, the then Finance Highlights of VAT implemented from 1st April, 2005
Minister, West Bengal as its chairman and all Finance Ministers Following are some of the important highlights of VAT Which
of the states and UTs as its membcrs so as to facilitate tax policies was implemented in India since April, 2005.
the states.
1. VAT to replace Sales Tax, local taxes from April 1. 2005.
Ministers
The Empowered Committee of State Finance 2, Government assured the states of three-tier compensation
Teatlimed its intention to introduce state-level Value Added Tax package for revenue loss in the first three years.
A) Irom April 1, 2003. It also requested the Centre the expedite
the 3. VAT regime would cover over 550 items.
Pocess of necessary clearances, On October 18. 2002,
Conierence of state Chief Ministers, presided over by the Prime 4, 46 natural and local unprocessed goods are exempted.
er, endorsed the introduction of VAT fromheldApril I, 2003. 5. Petrol, diesel, ATF, sugar, textile and tobacco are kept
on March 4.
Again in the Empowered Committee's meeting out of VAT.
0S, all major states approved of this intention. 6. No decision is yet taken on VAT on CNG.
ever, the VAT had two most important advantages. Firstly.
Was neutral between different types of goods and services as 7. Medicines, agricultural and industrial inputs are kept at
It Was 4 per cent VAT slab,
levied at uniform rates in general, Thus it never altered the
mce ratio between commodities, Secondly. VAT was also neutral 8. Precious mnetals are kept at l per cent VAT.
tetween dif fonerent businesses on one hand and methods of 9.States are having oplion to exempt or levy 4 per
ioproduct
mpaniyion the
treat different cent
other. Thus VAT did not VAT on foodgrains.
e
ke. s differenly and treatedprevented
diferent types of oftechnology 10 States are free to choose
12.5 r 4 per cent VAT on tea
SingMoreover.
leakages resources
out of taxtheCvasion
VAT System
in sales tax and excise duties. Inspite 11. Remaining final products are to attract 12.5 per cent
these adyantages, differences among the
states regarding VAT.
 804

12. VAT regime is to cnsure

set-off for input tax paid. income in the past. he can now make \ndian t.
13. Overall tax burden will come down as a result Disclosure of Income Scheme'97 by
14. Prices in general will fall,
15. States'
revenues are expected to
of VAT.
used for acquiring property/motor vehicle
The VDIS 97 offered the person 3
declaring incume
16. VAT will bring
transparency in the system.
17. Threshold limit for traders
undisclosed income of carlier previous years.
under VAT is fixed at R3 made by the person under VDIS '97 shall not
Any chance
lakh. person in any procecding under be the
sucho
used
I8. Traders with turnover of S lakh to 50 lakh can pay I Wealth Tax Act (1957), FERA (1973) Income
and the Tax Ap:
(1956), Under the scheme no questions
per cent VAT.
Thus the value added tax
regime
are
harassment is made to the person concerned, VDIS Comnat e

operation in 21 states and UTs from Ist finally commenced its lowest ever tax rate: 30 per cent for
deadline fixed by the meeting of
Committee was also trying to convince
Annl, 2005 as per the
Empowered Committee. The The
forcorporate and irms,
sale of
individuals and 35
to implement VAT within the remaining seven states 1997
and the scheme commencement of the scheme .
Consensus,
their state at its earliest by
evolving a 1997, Of the total was scheduled to close on 3la h.
scheme. a substantialresources
which can
Empowered Committee as a Permanent Body slate
part. i.e., 71.5 per cent securedwill acaui
rde
The Empowered governments for intrastructural development m
VAT will continue to Committee
of State Finance sectors. The share, which
Ministers
monitor and co-ordinate with states afer on becomes available to the c
the formal introduction of VAT Govemment will go entirely towards
from Ist April, 2005. services programme and infrastructure financing the basic m
the Empowered
Committee has been Accordingly. needs.
state finance
ministers as members. registered as a society with Although the scheme was
However, after the introduction of Goods, and but within the stipulated period, criticised from various -
the scheme ended conyih
(GST) on July 1, 2017. throughout the Services Tax with a high degree of
(VAT) system has been subsumed in country. Value Added Tax able to net 10,050 croreresounding as additional
success. The VDIS, 197
Thus at this juncture there
GST system. income of about 33,000 crore, revenue, on an undis
far exceeding the goven
VAT. Rather, VAT should be cannot any choice other than expectations. Total number of
be
introduced in a meaningful manner about 4,66,03 1. Thus about 4.66 lakh under the scheme declarants
throughout the country. Thus the
on its modalities. country should attain a consensus the amnesty scheme declarants bad avile
chunk the black money. Thus
of
which had helped in apping a subsge
17.8.7. Voluntary
Disclosure of Income unearth about 33,000 crore of VDIS 97 has been e
1997 (VDIS) Scheme, monthly amensty scheme, which could garmer under e black money
The Government the total about one-h
different times to introduced
unearth black
Voluntary Disclosure Schemes at unaccounted money in the country.
introduced in 1951. Again the money. This scheme was first 77.5 Although per
the UF Government had
propOsed carlier l0
and then again introduced as scheme was introduced in 1965 the cent of the revenue collected upto
Direct Tax Enquiry per the
recommendations of the VDIS '97 to the State December 19
Committee. Governments
estimated to around 4.379 crore) but the (which w5 t
Again as per the suggestions made by BJP led
Development Council the National
in its Interim Budget,
be 1997-98 proposed to double theGoveiam
think of a scheme to(NDC) meeting that the Government should devolved the states from the VDIS
to
harness "black As against the collections.
purposes, the Budget for the year 1997-98money" for aproductive 1997-98 proposed devolution ofR 4,379 e
Disclosure Scheme. The scheme was a simple introduced Voluntary BIP by the UE Govermment the new Governme
irrespective of had
where per cent gone
or the nature or the source ofscheme
a step lo states
amount disel the funds the further, proposing
of VDIS collections for the full to devolve
year. Instesdof
either as cash securities or
held in India or abroad assets, whether December 1997,
rate of tax. Interest andwould be charged at the revised highest Thus, although amounting to 7.594 crore. unearth t
would be granted from penalty would be waived. money has been VDIS '97 as a scheme to
tax and the Foreign any action under the Income tax,Immunity criticised
Wealth scheme ended with a resoundingsSuccessas
unethical l and unproductive. h
Exchange Regulation Act. of black to unearth
As per this scheme if any money and
.

these undermentioned person who fulfills any two of revenue to be sharedalso to collect a good amount of
to atelephone indicators viz., (a) if a person
subscribes Governments.
by both the Central as well as
exc connection: (b) Occupies an inmovable
CACeeang a specined loor area by
(c) Owns or has a leasedd ownership: tenancy or 1.8.8.
property Forces
motor
travelled abroad or financed the foreign vehicle: and (d) has Direct Recommendations
s of the Task
and Indirect Taxes- Report of
Ke
during the last one year, and have travel of any person Panel
never declared his taxable Although economic reforms were initiated since 199/
process of tax Th
reforms in the country was quite slow
 805

ubllcFinance uterisation of custorms.

compue for hassle

thiscrucial taxation area were being continued with ) Conplete automation and January 2004
leading to failure in the taxation front of the departments by
Cxcise and tax Commn1ttee
egsures
trec prOcedures Kelkar
Concerns, theproposals, choosing
to initiate the process of tax reforms, Finance Thus bowing down to public
to tone down
its the
Singh set up Vijay Kelkar Task Force with the on taxation reform appeared loans and pcgging key
JasWant
Cationalising cumbersome on housing The three
tax structure so as to
not abolish. sops
0r
deteriorating trend in public GDP finances, improve
to reduce,
at ? 50,000. report *ete
rebate limit on interest paymnents
reforms suggested in the
- tax fiscal suppot
Nethe
v making the taxbase
administration simple and meaningful
wide with low rates.
features the directsenior citizens and windows,
in the form
oo make the tax additional relief for encouragement to saving
presentingthe first batch of supplemen:ary demands r ncome groups and
While
parliament July 2003, the Finance Minister had of annuity and pension schemes. administration the panel
total automation of tax institution or
ants to up of two Task Forces so as to recommend Apart from move towards an
sres for setting
simplification and rationalisation of direct and bad sought to transaction
nsdthe on direct taxes system of taxation, lowering
and also
set uD in Smple and transparent
es Accordingly, two task forces were collection, alignment of incentives of Indian
the chairmanship of Dr. Vijay L. Kelkar, weaknesses
2002 under
iemher cOst of revenue One of the important only allowed vested
Finance and Company Affairs. Widening of tax base.
Mirnister of
isorto exemptions. This has not ground for
on Direct Taxes presented
the
tax system isperform become a breeding
The Task
Force o02 its
Theconsultation
discussion interests to but also
Governnment on November 2, 2002, corruption besides narrowing the taX
base.
rlo the
indirect taxes was
presented on November 25, 2002. situations, Kelkar panel rightly
with the institutions
nron
nsulation papers were made public for facilitating an In order to dealexemptions be given to charitable
this process, there was an Suggested that no tax the government.
med discussion on tax policy. In been given grant by
assocjations
himing response from trade and industry into account the
and rather genuine institutions recommendations
Task Force
neople of all walks of life. After laking discussions with However, the broad thrust of the of the tax policy, reduction
holding simplifications
nnse on tax discussion papers and a cross section of people, the was directed towards removal of anomalies along
with radical
and industry associations and of tax rates and system. But the
Govermment in tax collection
Eorces submitted their final reports to the improvement of administration ofpayers although welcomed some
aember 2002. These Task Forces have made important and personal income tax
industry
pnendations on toning up tax administratuon to put n place of the recommendations but they were not happy with the proposa
and at par, if not better than
: Sstem that is simple, effectiverecommendations of withdrawal of exemptions and concessions.
on direct taxes strong and well
tenational standards. The main limit of personal income tax, Unfortunately, the vested interests were so
elate to raising of exemption raised from different
nionalisation of exemptions, abolition of
concessional treatment entrenched that the well planned criticismVijay Kelkar to go on
respect quarters forced the Finance Minister and
olong term capital gains, abbolition of wealth tax etc. In Although
the major recommendations relate to widening back foot and thereby roll back some of their proposals.
af indirect taxes, of tax policy,
expansion in the coverage some of the suggestions like simplification
dthe tax base, removal of exemptions, can be accepted without any
improvement in tax administration
of service tax etc hesitation but some other recommendation need serious
Kelkar Panel report
Main Highlights. Main highlights of considerations on rational line. Poor enforcement system is
nlude another handicap of Indian tax system which Kelkar Panel failed
Two-tier tax to address. NarrOW coverage of the tax net is mostly resulted
a) Exemption limit on personal doubled.
Structure proposed 20 per cent tax on
income between from their weakness. Although the Kelkar Panel felt the need for
over 4
income widening the tax base it had not been all to recommend any
Tto 4 lakh and 30 per cent tax on
lakh; practical measure to tackle this problem of tax evasion for which
D) Standard deduetion and surcharge on income tax are (o a corruption-free, autonomous, powerful tax administration is
be eliminated: badly required. This requires avoidance of political interference
lax incentives for savings to go: in the tax administration for smooth running of the taxation
a) Abolition of dividend tax and long term capital galms machinery.
lax
) Income tax on aoriclture is left to states; 17.8.9. Goods and Services Tax (GST)
per cent to On 10th November, 2009 the Empowered Committee of State
OrpOrate tax is to be reduced from 36.75
30 per Cent,
Finance Ministers, in presence of the then Finance Minister Mr
50,000 from Pranab Mukherjee announced the draft report on a model and
x rebate on housinp is to be reduced to road map of Goods and Services Tax (GST). The
S0,000. AlterDative suggestion of 2 per cent interest GST is expected to replace most indirect new tax system
Subsidy on housing loans up to ? 5 lakh; state levels. The new GST structure was taxes at the central and
uty on life saving drugs. Reduction in import duty July, 2017.
made effective from
Cude oil and petroleum products; and
 809
PubllcFlnance
domnestic indirccT
and services, including nearly all
TV and monitor operative federalism. Under GST. centre and
states
by
ickets. power banks GST wilI
weeetables from the levy. Theand cxempled
reduced rates
frozen and tax decisions are to be taken jointlyIrnplementation
are likely
of
unitying
ffect from January 1, 2019. Of the 23 goods and 2. Simplifying tax structture. also go a long
way in
N
which rates have been slashed. lax rate of seven simplify complex tax structure Previously, 8 to 10 central excise
and
per cent slab has been brought down. With this tax rates across the country. applicd differently across
i nthe28
highest 28 per cent tax bracket The duty rale and 3 to 4 state VAT rates GST rates, applied
good
gds are left in the
now consolidated into four-tier motto "one
which GST has been lowered to l8 per cent from 28 tedre to attain the
pulleys, transmission shaft and cranks, gear uniformly across states in order
inlude one Indian tax".
power banks of lithium ion under the
s, retrealed and used tyres,
camera Increase in Tax Compliance. Tax compliance loopholes and
digital cameras,
VideO recorders and video game J.
necessarily due to plugging of GST rate to
28 per cent tax slab is restricted to luxury GST Will increase of
Now, the the possibility
es
partS and cementthe tax rate on leakages. This would enhance
ds apart from autohigh revenue come down in future.
could not cut due to implications attached Introduction of GST
for carriages for specially--abled corruption and leakages. taxation
Aich
tt Accessories persons 4. Reduce from the indirect
brought down to 5 per cent. The annual implication will reduce corruption and leakages claim input
pehen around R 5,500 crore. India. Self policing ¿e.. invoice matching to compliance.
rateP-cuts would be Setup in non-compliance and foster
tax credit will dater
the
nearly 1.250 goods and services have been categorised matching existed only forand intra-state VAT
Thus slabs of 5, 12, 18 and 28 per cent under the Previously such invoice service tax also not for
four tax not for excise and
the country should sactions and
recime. However, the eventually haveera imports. Absence of invoice matching in the earlier System
transact

ctue which wOuld have only slabs of zero and five

T

standard rate between 12 and 18 per cent with luxury enhances corruption. GST regime
goods as cxception. 5. Abolishing entry tax and octroi. As the borders.
i sin
21. will abolish entry tax and Octroi at the inter-state
Arain, the GST council in its 28th meeting held on July the major point of corruption, thus much of the
the threshold exemption limit for the considered as disappear.
IS. recommended that corupt practices followed at the inter-state border will
th Eastern states including Assam be increased to R 20 lakh eficiency into the entire
im 10 lakh fixed
earlier. This will also enhance the operational
dismantle the network of check
system. Moreover, GST will
Thereafler. the GST coDAcil in its meeting held on January, points and thus enable seamless movement of goods across state
MSMEs and sm:
2019, provided major relief to small business
lakh to border and thus improve supply chain efficiency. As thebetween
trucks
ad thereby doubled the exemption threshold from 20 to travel
for in India normally spend 60 per cent of the time
140 lakh. It also raised the limit of higher turnover locap 1.5 citiess idling g at multiple check points. In India, truck drivers on
Kailing composition scheme of paying I per centApril tax day as compared to
L.0 crore set earlier with effect from 1, 2019, an average run around 250 to 280 km per
oe from world average of 400 km per day and 700 km per day in USA.
Benefits of the GST This faulty system enhanced the tranction costs to a considerable

Goods and Services Tax (GST), which was rolled out in Ist
extent on the businesses. Thus abolishing entry tax, octroi and
definitelv
Uy, 2017, is a modern, up-to-date and efficient tax System. If check points with the implementation of GST will a whole
benefit he trade and industry as well as the economy as
plemented properly, the country will get immensely benefitted
to aa considerable extent.
nis. In order to realise the benefits from GST, the
6, Creating a common market. GST will eliminate most
owernment has to implement it with proper care so that it of the physical restrictions and also all taxes on inter-state trade.
nes assessee friendly, taxation friendly and has to adopt
imple procedure It will necessarily make India a common market. This is mainly
iure for its implementation. will
Spite of initial teething problems. the implementation of due to the fact that the GS l regime after its implementation
Can be hailed as a giant leap towards an integrated and subsume all the central and state axes and duties of the country.
tasparent mechanismn in order to abolish the separate centre- helP Thus GST will help in removing economic distortions and thereby
R t t lax structure and also to dismantle the prevailing n developing common national market. GST will also neduoe
etm-state inter- Slate fiscal bariers so as to create a unifying the cascading affect of taxation.

Wards, high mark ket for the entire country as well as to pave the way create7. aTax eredit. Tax credit under GST at each storage will
growth path.
Athough the tax machinery are a bit confused about the
system of better invoicing and self-policing. Moreover
GST will result increased compliance, simplified tax
regime and
alities and to implementation of GST due reduced exemptions which will broaden the tax base,
S
hasty structure relatedbut with the passage of time, it is
taX revenue collections of the government and increase

benefits iofmplGST.
ementati on
tcd that things will settle gradually.. Following are some of also reduce
corruption.
8. Increase export
1. Proner
competitiveness. GST as a
based tax will reduce tax rates on exports close todestination

lemeFurntationthering
co-operative federalism. zero and
of GST will open the path for furthering co- thereby increase export compettiveneSS of the country. It wil
 810

make more cffective and less leaky the domestic tax levied on The proposcd code seeks do away with Indan
imports, which will make domestic goods, more competitive. complex language presently used iin
litigation and incapability of retu cotformmpie
rn
Thus, it will help in furthering "Make in India" campaign by
accomodating
stabilitcyhange
climinating bias in favour of imports and willalsoimprove India's in for frequent amendments so that
ranking in "Ease of doing Business" the tax systemn in truest sense. i

9. Eliminate Tax bias, Implementation of GST can eliminate The Budget for 2009-10
tax bias against manufacturing and can also reduce consumer tax underscored inth
continuing the process of structural
burden. By rectifying breaks in the supply chain and allowing promised a comprehensive code to thischange Dre
caser flow of input tax eredits, GST will substantially eliminate (DP) along with a draft Direct Taxes effect. AD

CodeCodseeks
e wass put
cascading. domain on August 12, 2009. The
10. Boasting up the economy and economic growth. amend the law relating to all direct to cony
Implementation of GST will boost revenues, investment and dividend distribution tax and wealth taxes,
tax that j -
medium term economic growth so as to
will be stimulated, because scope under this system, investment economically efficient, effective and es.
of input tax credit for capital
purchases will increase. Tax base of the country will also expand
which will facilitate voluntary compliance equitablande direct
tax-GDP ratio. AIl the direct taxes
through better compliance. Moreover, embedded taxes in exports single code and have
been help in:
will be neutralized. Besides,
manner will not only boost implementation
of GST in proper
compliance procedures
eventually pave the way for a single unified
unifg brough:
up country's corporate sector by SVstem. The need for
benefitting them from wider market
but also make India a more
and wide scale of business complex structure of the Code arOse from Concem.
the Income Tax Act, numere
taxpayer
attractive destination for foreign making it
investment. Moreover, GST will have no significant impact on policy incomprehensible to the average tax paver
inflation. Thus under this positive business changes due to the
environment, proper DP states that marginal tax changing economic envitnn
implementation
of the country in a
of GST will definitely boost economic rates have been steadilw l
growth the rate structure rationalized to reflect best
smooth manner. intermatiensl
and any further
However, with the implementation of GST,
getting costlier due to higher rate of
rationalization of the tax rates mav not h
services are without corresponding increase in the tax
raise the inflation rate in the short GST on services. These may productivity of he tax system and base to enhance n
like airlines, 1T, Online business run. Various services industries improve its honizontl.
portals A threefold strategy
would like their charges due to like in the telecom services etc. for broadening the base ha
rates of tax on services. articulated in the Code. The first
Telecom services including mobile phone and
costlier with internet getting
are minimise exemptions that have element of the strateg
eroded the tax base. The
implementation
the
implementation
of GST has
of GST. Moreover, hasty
of these
exemptions would result in a higher tax-GD?o
and also disturbed business resulted distortions in the market enhance GDP growth; improve equity (both
prospects in the short run.
However vertical); reduce compliance costs; lower horizoma
these problems like temporary and discourage corruption. The administrative br
inflation,
downward business, trend faced the market distortions, second
faced by countries like Canada, initial period, as it is seeks to address the element of the
facilitates tax avoidance.problem
of ambiguity in the lan
Malaysia,
very temporary in nature. With the active New Zealand etc. are The third element of the strategy
council all these initial problems initiative of the GST to checking of erosion of
related to the tax base through tax evas
Not withstanding these GST can be solved. Some Key Features
of the most
initial lapses, GST would prove to be one
outstanding
that with proper reform measure in India. It is expected " The Discussion paper
discusses the principles ot h
distorations, GST implementation
will provide multi
and gradual correction of its based taxation of income and source-based tata
to both dimensional
producers, traders, consumers as well as to flow of benefits income in terms of international best practkes
Government. the mixes of the two, Under the Code. resident
taxation is applied to residents and source-based
17.8.10. Direct Taxes Code (DTC) residents, A resident of India will be liable to tat
On 12th August, 2009, on his world-wide income.
the However. a
Mukherjee released the Direct TaxFinance Minister Mr. Pranab be liable to tax in India only in respectnon-t
of aaru
order to bring total reform in the Code and Discussion Paper in receipts in India (including deemed accruals and r
The proposed Direct Tax existing direct laxes
and other direct tax code will replace regulations.
the 1961 Income The draft Code simplifies the dualistic cONt
laws and is expected to Tax din th
previous year" and "assessment year Useo
structure. The new code will provide for a provide a simple tax and replaces themn with the unified concep
capital gains tax, savings simple
instruments, income tax etc.structure
code is expected to have better The new
for year" and decrees Obligations
that all rights and willbe ma
of taxes and will have compliance
less scope
and better
for litigation. The collection
laxpayer and the tax administration
code (DTC) was scheduled reference to the
proposed " The DP argues for"financial
to be year
implemented from April 201.
an income tax
special treatment of capital gains
Firsty,aun
two reasons.
regime for