India 's Effect On The Indian Economy

1676 Words Aug 4th, 2014 7 Pages
Multiplicity in Indian taxes has created complicated tax structure and has led to increase in the administration cost. To deal with this issue, the empowered committee of state finance ministers led by Mr. Asim Dasgupta has proposed the need to shift to GST regime from the existing VAT structure. This paper tries to analyze the impact of the proposed reform in the indirect tax system and whether it will boost the Indian economy by improving Tax-to-GDP ratio.
Introduction:
Direct as well as indirect taxes both form a major part of revenues to the Government. With India’s tax to GDP ratio just under 15% as reported by Moody’s, it is a sign of worry for an emerging market like India. One of the main reasons behind India’s poor performance is the presence of highly inefficient indirect tax structure.
To rationalise the tax structure and to remove inefficiency in the taxation system, VAT was implemented by central government in the year 2005. It was then seen as a major improvement over the pre-existing Central excise duty at the national level and Sales tax at the state level.But over the years, various tax leakages have been discovered in the VAT system as a result of which contribution of indirect taxes to the GDP has declined. (See Exhibit 1) Implementation of Dual GST is seen as an ultimate indirect tax reform which will boost the country’s economic structure.
Shift from VAT to GST
The multi-layered indirect tax levied both at the Central and State level in India is…
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