Comprehensive Literature Review on Goods and Services Tax

 

Mr. Pawan Kumar¹, Dr. Dilip Kumar²

¹Research Scholar, Faculty of Management Studies, ICFAI University, Jharkhand.

²Assistant Professor, Faculty of Management Studies, ICFAI University, Jharkhand.

 

ABSTRACT:

Taxation system is as old as the human civilisation. This has evolved over the ages and Chanakya’s Arthashastra is the famous treatise on the subject of the ancient times. However, with the regular evolution of the economic activities combined with adoption of different forms of administration the taxation systems were bound to change. The further evolution came with the scientific discoveries, expansion of economic activities, growth of population, improvisation of production systems among others. The present paper aspires to look into the acceptance and success of the GST system. It tries to look into the different factors which are bound to judge the effects that try to mould the overall GST implementation mechanisms. For the said purpose, firstly an analysis of existing taxation system has been undertaken in brief and thereafter literature survey has been attempted to know the experiences of researchers and scholars from other parts of the world. It is apparent through this exercise that while at one side, GST serves the economic uniformity in the economy, this noble purpose takes time and lot of evolution and experience through implementation process is required. Major conclusions have been enumerated as the need of the consumers ‘awareness, and need of managerial expertise and experience for successful implementation of the GST system. It has also been pointed out that the effect of GST may differ for different sectors in the same economy in different degrees.

 

 

 

INTRODUCTION:

“Kosha MooloDandah” (Treasury is the root of Administration) – Koutilya

 

Rules and motive of Taxation:

Centuries before treatises on taxation given by Koutilya (Chanakya) still remains valid today. Only a good administration can ensure the justice, wellbeing of the society, peace, economic prosperity, sociocultural advancement and security of the people. A good administration can’t be imagined without a stable State and the latter can’t exist without its own treasury which can only be created through its own sources of income.

 

 

What are the sources of income to a State? Of course, the tax imposed and collected by the State on its subjects. Now the question is how to impose the taxes and where to collect them. Another one is that who will collect them. These are the basic questions which are responsible for the establishment of whole system of tax mechanism from incidence points to collection points to finally converge at a single place called treasury. Today it is also called Consolidated Fund.

 

Types of Taxation:

Nowadays, two types of taxation are in vogue: Direct Taxation and Indirect Taxation. In the system of direct taxation, tax imposition and incidence lie on the same person. Examples are Income tax, Wealth tax, Capital gains tax, corporate tax etc. Here the payer himself or herself bears the brunt of the taxes. In the system of indirect taxation, the imposition points and incidence points are different. Here the taxes are paid at first instance by the Importers, Producers, Wholesalers, Service providers etc. as the case may be but ultimately it is passed on to the end users i.e. final customers of those products or services. Examples are Customs Duty, Excise Duty, Service Tax, Value Added Tax (VAT) or Sales Tax etc.

 

Here our focus in this paper is on Indirect Taxes. Customs Duty is mainly imposed on imports and Additional Customs Duty (ACD) which is also called as Countervailing Duty (CVD) is leviedequivalent to Central Excise Duty which is imposed on Manufacturing. It is xc calculated on value base of goods including landing charges and basic customs duty (excluding anti-dumping duty, safeguarding duty, etc). Excise Duty is collected on the Factory gates where the produced articles are being cleared and despatched. Other types of Taxes like Service Tax, VAT (Sales Tax), etc. come within the purview of Indirect Taxes. In these the producer, service provider or marketers pay the duties or taxes at the first instance, but these are included in the value of these goods for which the final customers pay as prices or considerations.

 

Role of Indirect Taxation in the economy:

When we talk about the direct taxes, it can be observed that the tax is incident upon the end result of the business, salaried jobs or any other economic activity that generates income or wealth. On the other hand, the indirect taxation accrues during the due process of such activities which produce those end results. That is on imports, on production, on sales, on despatches, on transportation etc., or in other words from inception to whole of the supply chain to the end products and services and the final tax burden lies on the end use consumers. Ultimately the records which are maintained to reflect such activities are finally consolidated to final accounts where income and expenditure reflects and forms the base for direct taxes for the businesses producing goods and services. So, the role of Indirect Taxation can be enumerated as below:

a.     Helps to keep track of records on reasonable basis and cannot go arbitrary as there are many check points created automatically in due course of business and cannot be set arbitrarily.

b.     When the economic system is in development stage, then process of the business is more easily traceable rather than their final results in case of data authenticity. Certainly, in such cases, the share of indirect taxes in total revenue carries majority. When the economy advances and the processes are more and more standardises, the indirect taxes give the spaces to direct taxes, as the outcomes of such processes in the forms of goods and services are more and more traceable with authenticity.

c.     The role of the government in guiding the economy is more pronounced through indirect tax policy decisions, especially in underdeveloped economies. The government can decide its priorities according to socioeconomic needs and accordingly design its tax structure in order to boost or frustrate the targeted activities.

d.     Different sectors of economy require different modes of operations at different scales. This can be more reasonably addressed and acknowledged in the indirect taxation system in order to give them optimum impetus.

e.     However, there is a caveat also. The Direct Taxes generally follow the policy of PAYE i.e. Pay as You Earn. But the Indirect Taxation puts all the end consumers at the same level. Here, the government can play the important role through measures like subsidies to facilitate the have nots and thus propagating the income transfer to lower strata of society. The same can be applied in other essential services like defence, health etc. Here, the policy on indirect taxation has much bigger role to play.

 

Goods and Services Tax (GST) in India:

Almost after two decades of the economic reforms, there is idea of second-generation economic reforms with an eye on focussing the growth on economy from the development stage so that to generate more resources for social and other sectors. This is being visualised by labour law amendments and integration of taxation system. While the former is legal matter, the latter is our point of present discussion. After going through the different indirect taxation systems of different economies around the world, idea of integrated taxation system was conceived. The vision was to integrate the whole system of indirect taxation methodically and digitally so that the tax payers find it easier to pay consolidated taxes at one point in place of several points, thus reducing the administrative burden for both assesses as well as the government. Again, the federal structure of the Union of India was also to be kept in mind. So, there was finally evolved a system called Goods and Services Tax (GST) that was notified in 122^nd Amendment Act in the Constitution of India on 1^st July, 2018 with and ideal of “One Nation, One Tax, One market”. It looks rather complex in comparison to other countries and requires ample time to stabilise with further simplification with more and more experiences with actual implementation. However, so far it has been seen that the big business houses are easy with the system, the smaller ones are still to be familiar. The recent COVID19 further aggravated the situation and due to far less collection of revenue to the government exchequer than that was envisioned initially, the system is passing through rough waters with tough testing time.

 

Review of Literature:

This phase of Indian Experience can be studied with the experience other economies and studies of different scholars as well. Then only a definite idea about the present scenario and possible outcome can be discussed. Ultimately, this may provide some glimpse of the possible solutions also.

 

Ben Fillip and Matt Taylor (2015) look into the different scenario of GST base expansion and rate changes as well, that may affect the different income groups of households in Australia. They also explore the possibility of combining this exercise with the Income Tax rate changes. They evaluated the different expenditure patterns of different types of income groups. They concluded that either expanding the GST base or increasing the rate of GST in Australia may cause a regressive taxation that may negatively affect the income position of low-income households more than that of their higher income counterparts. It is clear that they have tried to evaluate the GST from the consumers’ point of view.

 

Kumar (2014) discussed that the GST will help in removing the economic deformation by indirect tax system in India and encourage the unbiased tax structure in different part of India.

 

Pinki et.al, (2014) concluded that the GST will be beneficial for the central government, state government and consumer for long duration of time. IT infrastructure will be playing a crucial role for the effective implementation of the GST.

 

PohJin Goh et al., (2017) highlighted the overall view of GST in Malaysia and suggested that there is a significant need for the Malaysian government to put in more effort to ensure that consumers have a clear understanding and develop a positive perception towards GST, leading to its acceptance. They have pointed out the need to GST awareness among the Taxpayers in Malaysia. But this feature cannot be limited to any particular region or community. Spreading of awareness is key to ensuring the success of taxation reforms.

 

Garg, G (2014) depicted that the GST implementation has been an important and exhaustive step after independence for the economical transformation. It will be most significant task for the indirect tax collection in India.

 

Poh (2014) examined the GST policy in Malaysia and pointed the most crucial and hidden truth of goods and services tax. He said that GST looking good on paper but it will increase 2% tax on the goods and services which ultimately increase the price and decrease the demand in short and long term of duration.

Palil (2011) explained that the GST will increase at least 4% of products price but due to lack of awareness and knowledge about the GST the price of the products may increase because of a hoarding among mentality among the public.

 

Peter S. Spiro (1993) tried to evaluate the operation of parallel economy under GST regime in Canada. They have given the accounts of the methods to implicate the part of the business which is not reported to the Government thus reducing the tax base. This is very much relevant in India as visible in large number of fake invoice cases i.e credit laundering.

 

Hafizah et al., (2013) underlined the basic requirements of GST and they look into the implementation of GST system in Malaysia, its need, operational framework and other aspects needed for successful implementation. This work gives fair insight to gain the ground for further research.

 

Valadkhani and Layton (2004) examined the magnitude and duration of the GST effect on inflation in Australia’s eight capital cities. Their observations pointed out that that the pattern of inflation ensued after GST implementation in Australia was uniform throughout the country and no significant differences were visible in capital cities. In fact, this study confirms the credentials of GST in economic unification of the country.

 

Philip Lignier (2009) points out that managerial awareness is also the part of ease of doing business, the major outcome of this research in relation to managerial benefit perception is that a large majority of small business taxpayers believed that, as a result of tax compliance requirements their record keeping had improved, and that they had a better knowledge of their financial affairs. This aspect may be of much significance in India as the country boosts the MSMEs in large proportion as economic prosperity drivers as well as leaders in employment generation.

 

Zyl (2011) described that those people who was running illegal business should registered under VAT and concluded that illegal transaction should be liable to value added tax so they should not reimbursement due to lower costs on account of no VAT.

 

Williams (1996) compare the contemporary indirect tax system in the world and indirect tax or value added tax in Republic of Fiscalia. He discussed about the advantages and disadvantages of Goods and Services tax practices and advised to the creation of international body to lineup and manages the VAT policies throughout the countries.

 

Tripathi, (2011) discussed about the various issues related with the value added tax and its impact on the different section of the society. Goods and services tax would be present in all types of services and goods produced and making it possible to pay tax by the all section of the society. GST is an important tool to increase the revenue from the each and every section of the society.

 

As per discussion of New Zealand Government (2012), the taxes on goods ordered and delivered through internet. It was tried to examine the GST and import duties applicability on the various import’s goods.

 

Mohamad et al., (2016), underline the need for the taxpayers to be aware of the major impacts of GST implementation in Malaysia with three major effects: inflation rate, revenue collection and income tax rate.

 

Rozlin Zainal et al., (2016) reached on conclusion that building materials and land acquisition costs are the major construction cost components most affected due to GST implementation. On the other hand, cost increment due to GST and exempted taxes have caused various issues in the developers’ business capital flow. Hence, developers have resorted to raising the housing prices in order to maintain profit and cover the risk of losses. It has discussed mainly the housing business while leaving the scope for its further impact on industrial producers who are also required to have the infrastructure development investments as in their capitalisation.

 

Ahmed and Poddar (2009) examine the GST reforms and concluded that it is a simpler and transparent tax system which will increase the productivity and output for Indian economy. They highlighted that the benefits of the Goods and services tax depends on its design and application.

 

Vasanthagopal, V. (2009) depicted that the switching from current complicated indirect tax system to GST will be the positive steps for economical development of the Indian economy.

 

CONCLUSIONS:

It can be concluded from the above discussion that Goods and Services tax (GST) will provide a great support to consumer and producers through an extensive and complete coverage of goods and services tax. GST promotes the economic unification of the country or state uniform mechanism of operations and implementations. However, its impact on costs may vary sector wise in the same economy as well. As the whole taxation system is outcome of the evolution down through the ages, the implementation of GST cannot be mastered overnight. It comes to maturity over passage of time. Specially, expertise of the managers of the businesses, big or small, that comes up while working in the GST system, serves to add the efficiency and effectiveness of the taxation system. Existence of parallel economy or the businesses not accounted for in official records for tax purposes is bound to reduce the success rate of any tax system for which GST is not an exception. A close look at this feature is required through the evolution of innovative methods of implementation of GST system. On consumers’ side, it is eminent that better consumer awareness about GST operations, their impact on inflation, revenue collection and income tax rates are needed to create positive perceptions about the GST system to become successful, especially in the democratic types of administrative systems. This will also serve to continue with the regular upgradation of the system with more innovative ways that become visible in practical experiences overtime to promote better acceptability of the GST system. This will also set the case studies for other economies as well.

 

REFERENCES:

1.      Spiro, P. S. (1993). Evidence of a Post-GST Income in the Underground Economy. Can. Tax J., 41, 247.

2.      Mansor, N. H., and Ilias, A. (2013). Goods and services tax (GST): A new tax reform in Malaysia. International Journal of Economics Business and Management Studies, 2(1), 12-19.

3.      Valadkhani, A., and Layton, A. P. (2004). Quantifying the effect of the GST on inflation in Australia's capital cities: An intervention analysis. Australian Economic Review, 37(2), 125-138.

4.      Goh, P. J., Cham, T. H., and Tay, A. G. M. (2017). Consumers’ Perception Towards the implementation of Goods and Services Tax (GST) in Malaysia: A Review Paper. Goh, PJ, Cham, TH and Tay, AGM (2017). Consumers' Perception Towards the Implementation of Goods and Services Tax (GST) in Malaysia: A Review Paper. Journal of Global Business and Social Entrepreneurship (GBSE) Vol, 1, 17-23.

5.      Lignier, P. (2009). The managerial benefits of tax compliance: perception by small business taxpayers. eJTR, 7, 106.

6.      Ahmad¹, M. A. R., Ismail, Z., and Halim, H. A. (2016). Awareness and perception of taxpayers towards goods and services tax (GST) implementation. International Journal of Academic Research in Business and Social Sciences, 6(11), 2222-6990.

7.      Zainal, R., Teng, T. C., and Mohamed, S. (2016). Construction costs and housing prices: Impact of goods and services tax. International Journal of Economics and Financial Issues, 6(7S).

8.      Swadia, B. U. GST Adoption: A perspective of Chartered Accountants.

9.      Banerjee, S., Banerjee, M., and Das, K. (2016). A Critical Review of Literature on Goods and Service Tax in India. Imperial Journal of Interdisciplinary Research (IJIR), 2(11), 1627-1634.

10.   Tripathi, T., and Dash, M. K. (2019). An Impact Assessment of Goods and Services Tax in India Through Strategic Analysis Approach (SAA). In Behavioral Finance and Decision-Making Models (pp. 269-280). IGI Global.

11.   Sawyer, A. (2013). New Zealand's Successful Experience Introducing GST: Informative Guidance for Hong Kong. Hong Kong LJ, 43, 161.

12.   Girish Garg (2014) 'Basic Concepts and Features of Good and Service Tax in India', International Journal of scientific research and management (IJSRM), Volume 2(Issue 2), pp. 542-549, e-ISSN: 2321-3418.

13.   Lim Boon Poh (2014), Gst In Malaysia: An Ugly Truth or A Beautiful Lie?

14.   Mohd Rizal Palil (2011), The Impacts of Goods and Services Tax (Gst) On Middle Income Earners in Malaysia

 

 

Accepted on 15.08.2020           ©AandV Publications All right reserved