India's evolving tax system: its successes and challenges

Abstract

The goal of this study is to critically investigate several facets of India's tax structure. Every person of the country is responsible for paying taxes. The taxation system determines the economic power of a country. Our federal tax system is divided into three levels, the Union Government, the State Governments and the Local Bodies. As the author points out, despite the fact that the Constitution clearly divides taxing authority between the national government and the state government, due to the prevalence of several types of taxes, the Indian tax system has been exceedingly complex. Various tax compliance regulations and rules, tax administration is incompetent, and several other issues. Aside from reviewing the existing literature on the subject, the purpose of this research is to track the evolution of the Indian tax system through three different periods such as taxes in ancient India, taxes during post independent India, and taxes after independent India. Although Lists 1 and 2 of the Seventh Schedule of the Indian Constitution clearly define the Union government's and states' taxing powers, these original tax provisions have undergone a number of revisions over the years as a result of essential constitutional amendments. This research article also makes an attempt to provide a description of direct taxes; together with ‘Income tax’, ‘Corporation tax’, ‘Wealth tax’, ‘Gift tax’, ‘Estate duty’, and ‘other taxes on capital and property’, and indirect taxes for example ‘Customs duties’, ‘Excise duties’, ‘Sales tax’, ‘Service tax’, ‘Value added tax (VAT)’, and ‘Goods and services tax (GST)’. Finally, the research paper discusses some of the most pressing difficulties and obstacles. According to Bird (1993), ‘Fiscal crisis has been proven to be the mother of tax reform’. However, such reforms are frequently impromptu and undertaken to fulfil instant revenue needs. In most instances, such reforms are not in the nature of systemic improvements to increase the tax system's long-term productivity. The evolution of a tax system to satisfy the needs of international competition has been one of the most fundamental reasons for recent tax reforms in many emerging and transitional countries (Rao 1992). The shift from a mostly centrally planned development strategy to market-based resource allocation has altered public perceptions of the state's role in development. The transition from a public to a private sector, heavy industry reigned supreme, the shift from an import-substituting industrialization approach to one based on market signals has prompted fundamental reforms in the tax system. In an open, export-driven economy, the tax system should not only raise the required funds for social and physical infrastructure, but it should also reduce distortions. As a result, to maintain worldwide competitiveness, the tax system must adapt to the needs of a market economy. When the right approaches are followed, revenue remains stable and growth in our economy is managed. Any tax that is not backed by law or exceeds the legislative authority's powers is unconstitutional. In 1994, this authority became the basis for levying a tax on some services, and the 88th Amendment to the Indian Constitution gave the federal government the ability to tax services. The internationalisation of economic operations as a result of increased globalisation gave another reason for reform. In light of the recent shift to introduce GST, this article examines the structure of the Indian tax system, its constitutional framework, and current system modifications.