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2023 | OriginalPaper | Chapter

8. Goods and Services Tax in India: A Stocktaking

Author : Govinda Rao

Published in: India’s Contemporary Macroeconomic Themes

Publisher: Springer Nature Singapore

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Abstract

The Goods and Services Tax (GST) that was implemented in July 2017 to simplify and harmonize the domestic consumption tax system has taken a firm root and is a reality. However, the potential gains from the reform are yet to be fully realized, and the reform is still a work in progress. In the last five years, the tax has settled, and there are signs of improvement in revenue collections. There have been many gains from the tax, and these include the unification of many domestic trade taxes and harmonized structure, removal of impediments to trade and reduced transaction cost of inter-state transactions, greater formalization of the economy through digitization, getting rid of inter-state tax exportation by converting the tax from origin-based to destination-based, and more efficient supply chain management. However, much more remains to be done to make it “a money machine”, and to lower the collection, compliance, and distortion costs. The paper details the reform agenda for fully realizing the potential gains from the tax in terms of efficiency and revenues.

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Footnotes
1
Bird and Gendron (2007) cite the cases of Belize, Ghana, Grenada, Malta, and Vietnam which repealed the VAT after implementing it, but introduced it in an improved form.
 
2
For details, see Rao (2022).
 
3
Keen and Lockwood (2010) test the “money machine” hypothesis in a cross-country analysis and find that the adoption of VAT is associated with an increase in revenues and improved effectiveness in a large majority of countries.
 
4
Bird & Gendron (2007) refer to the recommendation of a committee in Sweden to switch over to one rate of tax which was not found to be politically feasible.
 
7
Krever, (2014) provides a very useful insight in the Korean experience. See also Bird and Gendron (2007; p. 170–171).
 
8
Munoz and Cho (2004) using micro data on Ethiopia conclude, “……..even very poor countries can sometimes deliver the expenditure goods more effectively than poorly targeted exemption”. Quoted in Bird and Gendron (2007) footnote.13; p. 77.
 
9
The automobile industry has been claiming that there have been massive layoffs on account of various factors including high rate of GST.
 
10
Brought down to 12% in the 37th Council meeting on September 20.
 
11
Ahmad and Starn (2011) while discussing the carbon taxes make such a recommendation.
 
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Metadata
Title
Goods and Services Tax in India: A Stocktaking
Author
Govinda Rao
Copyright Year
2023
Publisher
Springer Nature Singapore
DOI
https://doi.org/10.1007/978-981-99-5728-6_8