All our lives revolve around taxes. We earn and pay tax; we buy and pay tax; we invest and pay tax; moreover, we even pay the tax for gifts! The other account is about the principles of imposing the tax and comparing the Indian tax system per se.
Going by the books of economics, imposing taxes is an art in itself. It is not that one may ask any amount casually or ask to deposit it anywhere. It needs a structure that describes what every element of the financial system is supposed to do. The efficiency of any system lies within its administration. The tax efficiency has the following pillars:
The key to an efficient system is Clear, transparent, and most importantly, unambiguous. The simpler the laws are, the more simple it is to comply. A complex system of laws would lead to many errors. Errors are dealt with in any tax system. Ultimately, the system would end up punishing someone who was honest in his intentions.
It is also important that tax officials should be experienced in their job. The GST bill passed in the Budget session of parliament was imposed from July 1 of the same year. The country had less than three months of time to train its more than 10 lakh officials in the entire country! When the tax regime took place, the collectors and the payer were both clueless.
The tax laws when comes under a structure should not be frequently changed. The income tax rates should remain stable so that market players can plan accordingly. This is known as ‘Menu Cost’ in economics. Let’s say a cuisine at a restaurant is priced at Rs 100 today. The next day tax is charged at 2%, it becomes Rs 102. Now, Next week it is charged at 5%, it is now Rs 105. The other week the government gives a 2% subsidy and it is now Rs 98. The restaurant has to go through the cost of reprinting menus every other week! This is the point where GST should think about it. It should determine things, at first experiment small and then implement big so that it stays for long, and stays known.
The government has to induce a lot of money on tax collection. They have to pay the salary of officials, the cost of implementing digital reforms, maintain the infrastructure, and much more. On the other hand, the taxpayers have to hire a CA for filing their taxes.
This is one of the important reasons why GST collections decreased by as much as 33% of its target.
This cost of claim and collection of tax should decrease. The government would save its money while the taxpayers will be able to shop more or give a break in prices to their consumers.
As organizations grow, they have to pay more tax. However, the amount of tax to be paid is subject to their earnings. Countries should make sure that they provide a good amount of time to their taxpayers. They should also make sure that there is an option of payment in installments. Luckily, here the GST has got full marks.