The United States tax system is broken down into federal and state taxes, where rates differ between both state and federal governments (1). State taxes vary, where California’s 1-13.3% tax rate vastly differs from Delaware’s 0-6.6% individual income tax progressivity (2). The government also takes 10-39.6%, creating another system of brackets, rates, and calculations (3). The common income tax is only one of many in the United States, creating a clout of political and social disagreements from the individual people to the single government. With great differences in taxing strategies, both state and federal governments must work to appease the people of each region, while simultaneously funding country operations. As conflict in policy can determine political party affiliation, taxes become intertwined in a financial dogma that can make or break legislation.
The United States’ ideologies on taxes is not unique, as India has retained a similar filing structure in its states and country. However, in recent events, India has “taken one step forward” and simplified its taxing structure to a single common market (4). On August 3, 2016, India passed the Goods and Services Tax (GST), thereby replacing the indirect taxes on goods and services by the Centre of States (5). To be completed by April 2017, the GST will simplify the tax system that has existed for generations. Instead of state and government taxes, all goods and services will be taxable with few exemptions (5).
GST will include a wide range of reforms, where it will affect the tax structure, incidence, the computation of taxes, tax payment, lawful compliance, and tax reporting. Likewise, it will affect all business acumen, where operations will be changed by product pricing, supply chain optimization, technology, and accounting (5). Essentially, in shorter terms, it is a complete overhaul of the old system. Where markets merged, states differed, and taxes were overseen by the Centre of States, there will now exist a single common marketplace with a single tax base. With aims to simplify the complicated tax system in India, the Indian government has certainly taking a step in the right direction.
Though the taxing structure of GST seems to be easy in writing, it will take months to be adopted by both corporations and citizens alike. GST is a value added tax, implemented at every point in the supply chain, “with credit allowed for any tax paid on inputs acquired for use in making the supply” (5). GST will be levied at both the Centre (CGST) and the States (SGST), where the design of the system will be the same throughout both entities. The tax at each level is going to be on the basis of destination principle, where exports would be zero-rated, and imports would have the same tax as domestic goods and services (5). Goods and services sold across state borders would attract an “integrated GST,” as the exact value is yet to be determined. Finally, an additional 1% tax will be levied by the Centre, where the revenue will be returned to the states for public purposes (5).
Not limited to just simplicity, GST offers a multitude of benefits to India. It will encompass a wider tax base to help lower the tax rates and eliminate classification disputes (5). The simplification of compliance procedures will bring about “rationalization of the tax structure” and dismantle the necessary complexity of the old system. It will help help state matters while the universal destination law will harmonize administration of state taxes and filings. Lastly, the new system ideally offers a solution to political turmoil and administrative matters that will inevitably benefit the people in lower taxes.
In order for this to come to fruition, the businesses and governing bodies must undergo significant change, as items are repriced and margins are readjusted for this simpler tax. Yet, in a world of constant pursuit of intelligibility, India is leading in a financial issue present in every government. Though speculation in numbers remain uncertain, the benefits this tax change are limitless in procurement, distribution, and cash flow in a rapidly growing Indian economy.
(1) Roach, Brian. "Tax Revision in the United States." 23. Bd. (1926): 390-412. Taxes in the United States. Tufts University, 2010. Web. 15 Aug. 2016.
(2) "2016 State Income Tax Rates." 2016 State Income Tax Rates. Money-Zine, n.d. Web. 15 Aug. 2016.
(3) Pomerleau, Kyle. "2016 Tax Brackets." Tax Foundation. N.p., 14 Oct. 2015. Web. 17 Aug. 2016.
(4) "Government Has Taken 'one Step Forward' on Retro Tax Issue: Arun Jaitley."The Economic Times. PTI, 2 Mar. 2016. Web. 17 Aug. 2016.
(5) "All About GST in India." EY. Earnst and Young, n.d. Web. 17 Aug. 2016.
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