Analysis of Impact of Goods and Services Tax on Indirect Taxes of Karnataka State

Abstract

Socio-economic development of a country depends on the effectiveness of its taxation system. Taxation policies of many countries are undergoing significant change in the winds of globalisation. To cope up with the emerging challenges of globalisation and digitalisation, the taxation policy needs to adapt to reduce the burden on taxpayers and increase the tax base. India has undergone many tax reforms since independence to make the taxation system comprehensive, unique, transparent, simple and broad based. Towards achieving the said objectives, India took the milestone step to introduce Goods and Services Tax (GST), which is considered as a landmark reform in indirect tax regime. GST brought goods and services under one tax net and provided less scope for evasion of taxes. GST is a destination-based consumption tax with the revenue-sharing mechanism between the centre and the states. It ensures that tax revenue is to be attributable to the state in which consumption takes place. This principle, in turn, affected manufacturing states’ (origin states) exchequers. The centre agreed to compensate states on account of the loss of revenues, due to roll out of GST, for first 5 years, with the projected annual growth rate of 14 per cent on a bimonthly basis, keeping 2015–2016 as a base year. An attempt is made in this study to ascertain the current position of tax collections of Karnataka state after 2.5 years of implementation of GST. It is found from the study that registrations, return filing and tax collections are increasing in the GST regime. But there is a delay in providing compensation to states. It will affect the spending of state governments on various welfare activities.