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In the Book of Genesis in the Hebrew Bible, Saint Joseph says, “But when the crop comes in, give a fifth of it to Pharaoh. The other four-fifths you may keep as seed for the fields and as food for yourselves and your households and your children.” While the Pharaohs have given way to the Government (that’s easy), the ‘one-fifth’ has become a ‘one-third’ (almost)! But interestingly, what St. Joseph says is equally relevant in the context of indirect taxes as well – paying a part of the produced goods to the governing authority in one’s state.
This entails the development of a comprehensive IT network for real time recording, sharing, and dissemination of information for calculating taxes later on. One look at the current Tax Information Exchange System (TINXSYS) will be enough to tell even an inadvertent viewer that the system is purely inefficient in handling all these functionalities; for that matter, it is not even present in all the states. Can the presence of multiple check posts within a few kilometres on either side of the border for two bordering states help? Any frequent interstate highway traveller would tell you how even a state entry tax collection booth causes huge delays; implementation of the GST through such check posts will further aggravate the problem as the states will probe even more into the goods passing their borders in order to minimise tax arbitrage. And we’ve not even come to the other informal ‘tax’ that border post guards collect.
But to its credit, the gargantuan challenge that the proposed tax aims to tackle is to minimise the problem of tax cascading, which has by far been the biggest cause of tax evasion and has been the reason that small unorganised players have spawned uncontrolled within the Indian market, as these are largely outside the threshold level of tax – due to both real income and unreported income – under the current regime.
Tax cascading can be understood by a simple example. Imagine a producer buying raw materials from a vendor for Rs.1,000 including Rs.100 as tax at a 10% rate to the vendor. Now, when the producer sells the final product to the end consumer for Rs.2,000, the tax at the same rate of 10% in the current VAT system comes out to be Rs.200. The customer should pay only Rs.100 as Rs.100 has already been paid on the raw materials before the value addition took place. But the customer pays Rs.200 as the producer does not get any input credit on the tax already paid. Hence, in essence, the end customer ends up paying a “tax on tax”. This leads to non-accounting of transactions, especially in sectors like construction and housing, leading to massive revenue losses and a direct incentive for the parallel economy.
In the Book of Genesis in the Hebrew Bible, Saint Joseph says, “But when the crop comes in, give a fifth of it to Pharaoh. The other four-fifths you may keep as seed for the fields and as food for yourselves and your households and your children.” While the Pharaohs have given way to the Government (that’s easy), the ‘one-fifth’ has become a ‘one-third’ (almost)! But interestingly, what St. Joseph says is equally relevant in the context of indirect taxes as well – paying a part of the produced goods to the governing authority in one’s state.
This entails the development of a comprehensive IT network for real time recording, sharing, and dissemination of information for calculating taxes later on. One look at the current Tax Information Exchange System (TINXSYS) will be enough to tell even an inadvertent viewer that the system is purely inefficient in handling all these functionalities; for that matter, it is not even present in all the states. Can the presence of multiple check posts within a few kilometres on either side of the border for two bordering states help? Any frequent interstate highway traveller would tell you how even a state entry tax collection booth causes huge delays; implementation of the GST through such check posts will further aggravate the problem as the states will probe even more into the goods passing their borders in order to minimise tax arbitrage. And we’ve not even come to the other informal ‘tax’ that border post guards collect.
But to its credit, the gargantuan challenge that the proposed tax aims to tackle is to minimise the problem of tax cascading, which has by far been the biggest cause of tax evasion and has been the reason that small unorganised players have spawned uncontrolled within the Indian market, as these are largely outside the threshold level of tax – due to both real income and unreported income – under the current regime.
Tax cascading can be understood by a simple example. Imagine a producer buying raw materials from a vendor for Rs.1,000 including Rs.100 as tax at a 10% rate to the vendor. Now, when the producer sells the final product to the end consumer for Rs.2,000, the tax at the same rate of 10% in the current VAT system comes out to be Rs.200. The customer should pay only Rs.100 as Rs.100 has already been paid on the raw materials before the value addition took place. But the customer pays Rs.200 as the producer does not get any input credit on the tax already paid. Hence, in essence, the end customer ends up paying a “tax on tax”. This leads to non-accounting of transactions, especially in sectors like construction and housing, leading to massive revenue losses and a direct incentive for the parallel economy.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
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An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human Face
IIPM – FLP (Flexi Learning Program)
