MERITS AND DEMERITS OF INCOME TAX V.

GST
Interim Submission for the subject of Principles of Taxation Law

SUBMITTED BY
Ankita Das Prn: 16010324212

Sayantika Sengupta Prn: 16010324255

Section- ‘C’, Semester – VII

SYMBIOSIS LAW SCHOOL HYDERABAD (DEEMED UNIVERSITY)

June 2019-November 2019

Under the guidance of

Dr. Chandrasekhar Alladi

Associate Professor

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 ABSTRACT

Amidst economic crisis across the globe, India has posed a beacon of hope with ambitious
growth targets, supported by a bunch of strategic undertakings such as the Make in India and
Digital India campaigns. The Goods and Services Tax (GST) is another such undertaking that
is expected to provide the much needed stimulant for economic growth in India by
transforming the existing base of indirect taxation towards the free flow of goods and
services. GST is also expected to eliminate the cascading effect of taxes. India is projected to
play an important role in the world economy in the years to come. The expectation of GST
being introduced is high not only within the country, but also within neighboring countries
and developed economies of the world.

World over in almost 150 countries there is GST or VAT, which means tax on goods and
services. Under the GST scheme, no distinction is made between goods and services for
levying of tax. This means that goods and services attract the same rate of tax. GST is a
multi-tier tax where ultimate burden of tax fall on the consumer of goods/services. It is called
as value added tax because at every stage, tax is being paid on the value addition. Under the
GST scheme, a person who was liable to pay tax on output, whether for provision of service
or sale of goods, is entitled to get input tax credit (ITC) on the tax paid on its inputs. The
major reasons for implementation of VAT are to have control over the taxation under single
ambit and have single tax base throughout the country and major revision required in the
present VAT are uniform tax base in all States Single registration and identification for
assessing both under Central and State GST to have a upgraded and expanded IT structure to
reconcile and cross check GST with declared income returns, fostering greater levels of tax
compliance.

Keywords: Taxation, GST, Indirect tax, Direct tax

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 RESEARCH QUESTIONS

1. What are the features, working, and differentiating the current taxation system in
India in nexus to the Goods and services Tax?
2. What are the advantages and challenges surrounding GST?
3. What are the future prospects of taxation position of various goods and services in
India?

OBJECTIVES

The research has been undertaken and presented considering the following foremost
objectives:

 Understanding in - depth the concept of new taxation system introduced - Goods and
Services Tax (GST) in India.
 Understanding the features, working, and differentiating the current taxation system in
India v/s GST.
 To evaluate the advantages and challenges surrounding GST.
 To evaluate the prospects of taxation position of various goods and services in India.
 To furnish the information for future research on GST based taxation system.

 GST is an indirect tax while IT is a direct tax thus understanding the impact and
implementation of both the taxes to be understood.

RESEARCH METHODOLOGY

The methodology adopted is largely analytical and descriptive. Focus has been placed largely
on secondary sources like books and online articles. The lectures and classroom discussion
have been rich with valuable pointers and gave direction to the research. The study was
conducted by using convenient method and was administrated through Conceptual Research
Methods based on secondary sources of data. Explanatory research had enabled variables
independent and dependent to be assessed in their degree of correlation. The method used in

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making the paper and the information which has been gathered, are from various sources
such as various websites of Indian Government like Finance Ministry (finmin.gov.in), GST
Council (gstcouncil.gov.in), GST Council Archives (gstindia.com), and many more; literature
review from journal papers; annual reports; newspaper reports; and wide collection of
magazine based articles on GST. Based on the analysis of above mentioned data collection
sources, the objectives of the study are defined and research design is drafted which is highly
descriptive in nature.

LITERATURE REVIEW

There are many studies have been made covering different aspects of income tax structure
which includes personal income tax, capital gain taxation, agricultural taxation, efficiency of
income tax administration etc. Several studies also have been carried out earlier for
estimating the buoyancy and trends in Central taxes including Personal Income Tax. A few of
them have been outlined below: M. Q. Dalvi, M. M. Ansari (1985).1 The study attempts to
study the fiscal performance of the Centre and the States in India within the framework of
their taxation powers. It also focuses upon estimating the elasticity and buoyancy coefficients
of different taxes for the period 1960-61. The study employs regression method for
estimating buoyancy and elasticity coefficients. The study had found out that proportionate
revenue generation capacity was more of these taxes in response to increase in income.
Kaldor (1956)2 was invited by the government of India in 1955 to review personal and
business tax in the Indian tax system with a view to augmenting resources for the second five
year plan. He found that prevailing taxation system in India at that time was inefficient and
inequitable. He recommended the introduction of an annual tax on wealth, taxation of capital
gains, a general gift tax and a personal expenditure tax for broadening the tax base. Aggarwal
(1971)3 analysed the impact of corporate taxes on retained profits of a concern and
performance of corporate sector in India. He also analysed its impact on public policy. The
study covered the period from 1960-61 to 1967-68 and was based on data collected from RBI
Bulletins. He highlighted that tax structure was not conductive for growth of corporate sector.

1
Aggarwal, B.R., “Corporate Taxes and Financial Management”, Indian Journal of Commerce, Vol. 26, No. 90,
1971, pp. 227-233.
2
Ibid V.G.Rao (1979) - The Responsiveness of the Indian Tax System 1960-61 to 1973-74, Allied Publishers
Private Limited, Bombay, pp 90-104.
3
Jain, Madhu, Impact of Taxation on Saving Behaviour of Private Corporate Sector in India, Unpublished Ph.D.
Thesis submitted to Delhi University, 1991.

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Rao (1980)4 attempted to study corporate tax system and tested the hypothesis that there was
zero shifting of the incidence of corporate taxation in the Indian context. The period covered
for the study was from 1950-51 to 1965-66 and data covered 21 selected industries. The study
revealed that lower tax rates for priority sector failed to achieve higher capital formation in
that sector. It was found that in majority of industries, tax was neither shifted to the
consumers nor to the labour. Mittal (1988)5 tried to outline the impact of corporate and
personal income tax policy on saving and investment behaviour in India during the period
1970-71 to 1985-1986.She observed that effective corporate tax rates were lower as
compared to statutory corporate tax rates indicating that people had availed benefit of various
tax incentives under the Act. In the end, the researcher suggested that it was preferable to
have higher corporate tax rates with higher depreciation and investment allowance rather than
lower corporate tax rates with lower allowances. Maji (1990)6 attempted to study the
evolution of corporate taxation, corporate tax structure, the impact of corporate tax on
corporate growth, shifting of corporate tax and various incentive provisions granted to
corporate bodies. The study highlighted that frequent changes in the corporate tax system
were introduced in the face of resource constraint. On the question of shifting, it was held that
tax burden had been shifted to whole economic system. Jain (1991)7 undertook a study on
corporate saving behaviour in order to identify how taxation provisions influenced corporate
saving decisions. The effect was studied both at aggregated level (macro level) and
disaggregated level (micro level) for the period 1960-61 to 1985-86. Twelvecompanies from
three industries were selected for this purpose. The study showed that corporate savings as a
percentage of GDP reduced from 9.1 per cent in 1950-51 to 8.5 per cent in 1987-88.In the
end, study suggested for reduction in tax rates, downward revision of fiscal incentives,
increase in depreciation rates and taxation of dividends in the hands of shareholders rather
than companies. Upendra M (2008)8 in his article entitled “Degree of Tax Buoyancy in India:
An Empirical Study has put his opinion that the average propensity to tax is declining with
the increase in Gross Domestic Product during post tax reform period. Thus the estimates of

4
M. Q. Dalvi, M. M.Ansari (1986)-‘Measuring Fiscal Performance of the Central and the State Governments in
India: A Study in Resource Mobilization’, Indian Economic Journal Vol.33, No.4 pp. 107-110.
5
Mittal, Sujata, The Impact of Corporate and Personal Income Tax Policy on Saving and Investment Behaviour
in India, Unpublished Ph. D. Thesis submitted to Delhi School of Economics, Delhi University, 1988.
6
Maji, M.M., Income Tax and Corporate Growth in India, Unpublished Ph. D. Thesis submitted to University of
Burdwan, West Bengal, 1990.
7
Reports of Kaldor Taxation reform committee, (Chairman: Nicholas Kaldor), 1956
8
Upender, M. “Degree Of Tax Buoyancy In India: An Empirical Study”, International Journal of Applied
Econometrics and Quantitative Studies Vol. 5-2 (2008), PP. 59-60

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gross tax buoyancy during pre and post-tax reform periods are not stable. V Rani (2011)9 in
her article entitled “Taxation of Income in India: a study of post liberalization period”
expressed her view regarding taxation of Income in India during post liberalisation period
and policy perspective in this regard. It has analysed the growth of income tax revenue,
performance of Income Tax Department and perception of tax professionals regarding
Income Tax System in India.

9
Vanita Rani, “Taxation of income in India a study of post libralisation period”, Punjab University, 2011.

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