NEW DELHI: In the last 10 years of Modi government rule, India has undergone marked tax reforms focused on streamlining the tax framework, enhancing compliance, and fostering transparency.
The implementation of the Goods and Services Tax (GST) was a pivotal transformation, revolutionising the indirect tax landscape.
Simultaneously, adjustments in direct tax rates and coverage have been pursued to create a more balanced system. Key reforms common to Customs, GST, income tax, and corporate tax include digitisation for e-filing and digital payments, real-time data sharing to detect tax frauds, faceless assessment and appeals, dispute resolution schemes like Vivad se Vishwas, compliance simplification through pre-filled returns, and rate rationalisation for competitiveness.
The Modi-led government introduced GST in 2017. It’s a unified tax system that replaced various central and state taxes like VAT, excise duty, service tax, etc, keeping in mind the need for cooperative fiscal federalism. “The successes in the indirect tax regime have been significant. The implementation of GST has effectively unified the indirect tax system. The introduction of the Common GST Portal simplified tax filings, while E-invoicing and E-way bills streamlined the movement of goods and curbed tax evasion,” said Pratik Jain, Partner with PwC India.
“Tax compliance has improved notably through digitised returns and data auto-population from E-Invoicing/EWBs. The establishment of the GST Council, comprising representatives from both central and state governments, has facilitated collaborative decision-making on GST matters, reflecting cooperative federalism in action,” Jain added.
Since its introduction in FY 2017-2018, with collections at Rs 7.19 lakh crore, GST has demonstrated impressive growth. The latest figures for FY24, unveiled on April 1, underscore this trend, with gross GST collections exceeding `20 lakh crore. On average, GST revenues have seen a growth of nearly 13% annually.
In the domain of direct taxes, tax filing process has been streamlined through e-filing, corporate tax rates have been lowered to encourage investments, and the Advance Pricing Agreement (APA) program has brought clarity to transfer pricing issues, with a record 125 APAs signed in 2023-24, as per experts. Legislative actions have targeted black money, while technological advancements have bolstered tax administration, leading to enhanced efficiency and enforcement capabilities.
The Modi government introduced the New tax Regime to streamline the personal taxation process by reducing the reliance on various deductions and exemptions. This approach aims to simplify tax compliance though it may offer less flexibility than the Old Regime.
All these measures have seen significant improvement in direct tax collection numbers. In 2013-14, net direct tax collections were at Rs 6.38 lakh crore. Fast forward to 2023-24, and they stood impressively at Rs 19.18 lakh crore. So, there has been a 200% increase in net direct tax revenue in the last ten years of the Modi regime. Additionally, the total number of ITRs filed in 2022-23 skyrocketed to 7.78 crore, showcasing a remarkable 104.91% increase compared to the 3.80 crore ITRs filed in 2013-14.
Areas of improvement
While the government initiatives have significantly advanced the taxation system, taxpayers still grapple with understanding the complex GST system introduced around seven years ago. Challenges persist, including the intricate tax rate structure, taxation on consideration-less transactions like employer-employee dealings and related party transactions. The uncertain application of pre-GST decisions under the GST framework adds ambiguity. Concurrent investigations by various authorities heighten taxpayer concerns, creating significant hurdles.
According to experts, despite industry expansions and business restructurings, practical obstacles necessitate immediate governmental attention to optimise benefits. Although the advance ruling mechanism aimed to provide clarity and prompt issue resolution, conflicting rulings across states have escalated litigations, deviating from its intended purpose of aiding taxpayers and fostering certainty.
“The vague notices/orders lacking detailed reasoning are also disrupting the business environment since the taxpayers have no option than to approach high courts in these cases, as well.
Non-constitution of the Goods and Services Tax Appellate Tribunals has become a serious cause of concern for the taxpayers since the only recourse available with them, for all the remedies as on date, is to approach high courts. The tribunals are anticipated to function from July or August,” said Shivam Mehta, Executive Partner, Lakshmikumaran and Sridharan.
Meanwhile, in the realm of direct taxes, areas for improvement persist. Despite efforts to simplify, the Income Tax Act remains complex. As per experts, high personal income tax rates compared to global standards may hinder compliance.
High personal income tax rates compared to corporate taxes have resulted in lower corporate tax collection vi-a-vis personal income tax collection. For example, personal income tax collection in FY24 was Rs 10.44 lakh crore compared to Rs 9.11 lakh crore collected through corporate taxes. The gap between corporate and personal income taxes is also increasing with every passing year.
Litigations stemming from aggressive tax claims and transfer pricing disputes pose challenges. Significant strides are needed to broaden the tax base effectively. Moreover, delays in tax refunds and assessment processing contribute to taxpayer grievances, highlighting the need for enhanced efficiency in these areas.