Mobilization of Resources

The Indian government has undertaken significant tax reforms in recent years, with the implementation of the Goods and Services Tax (GST) and other measures aimed at improving tax compliance and enhancing the efficiency and equity of the tax system. Here’s an analysis of the government’s efforts and their impact:

1. Goods and Services Tax (GST):
   • The implementation of the GST in 2017 was a landmark reform that sought to create a unified national market by replacing the previous complex system of indirect taxes.
   • The GST has been effective in simplifying the tax structure, improving tax compliance, and increasing the tax base, leading to higher tax revenue collection.
   • However, the transition to the GST system has faced some challenges, such as the complexity of the multi-rate structure, compliance issues for small businesses, and the need for further harmonization of tax rates and procedures across the country.
2. Measures to Improve Tax Compliance:
   • The government has introduced various measures to improve tax compliance, including:
     • The introduction of the Faceless Assessment Scheme and the Taxpayers’ Charter to enhance transparency and reduce discretion in the tax administration.
     • The use of technology and data analytics to identify tax evasion and improve compliance.
     • Initiatives to widen the tax base by bringing more individuals and businesses into the tax net.
   • These efforts have led to an increase in the number of taxpayers and improved tax collection, but challenges remain in terms of effective implementation and addressing the issues of tax avoidance and evasion.
3. Impact on Efficiency and Equity of the Tax System:
   • Efficiency:
     • The tax reforms have contributed to the simplification of the tax structure, reduced compliance costs, and improved the ease of doing business, thereby enhancing the overall efficiency of the tax system.
     • The use of technology and data analytics has helped in better targeting of tax enforcement and reducing leakages.
   • Equity:
     • The GST has helped in reducing the cascading effect of taxes, which has benefited consumers and businesses, particularly in the manufacturing sector.
     • However, concerns have been raised about the potentially regressive nature of the GST, as it has a uniform rate structure that may impact the lower-income groups disproportionately.
     • The government has introduced measures to address this, such as exemptions for essential goods and services, but more efforts are needed to enhance the progressivity of the tax system.
4. Challenges and Limitations:
   • The tax reforms have faced implementation challenges, such as the need for better coordination between the Centre and the states, the complexity of the GST structure, and the issues of revenue shortfalls for some states.
   • Addressing the challenges of the informal sector and the large underground economy remains a significant challenge in improving tax compliance and enhancing the equity of the tax system.
   • The government’s efforts to mobilize domestic resources through tax reforms have shown promising results, but sustained efforts are required to further enhance the efficiency, equity, and transparency of the tax system.

Overall, the government’s tax reforms, particularly the implementation of the GST and the measures to improve tax compliance, have contributed to the mobilization of domestic resources and the enhancement of the efficiency and equity of the tax system. However, there is still room for improvement, and the government will need to address the remaining challenges to fully realize the potential of these reforms.