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25/03/2021 - Indian Economy

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March 25, 2021

India needs a robust tax system to optimize the utilization of financial resources and minimize the mistrust between centre and states. Elaborate (200 Words)

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IAS Parliament 4 years

KEY POINTS

·        Finance Commissions increased the share of states in income tax revenue as well as the number of commodities in the list of Union excise duties to be shared.

·        The access to a growing number of taxes as well as a greater share in them should have satisfied the states, but that is not so.

·        The 14th Finance Commission recommended a sharp increase in the share of taxes to be devolved to states, to 42%.

·        Cesses and surcharges do not have to be shared with the states, and the Union government has thus come to depend more on these than on taxes to collect additional revenues in recent years.

·        The Union government and Indian states have been playing crucial role to protect their respective fiscal resources, since country’s tax has not been increasing as a proportion of gross domestic product (GDP).

·        The tax revenue of the Union and states in India stood at about 17% of GDP in 2017-18 and has remained broadly constant since the early 1990s, but is now coming under pressure during the covid-19 crisis.

·        Given international trends, there is a compelling case for increasing India’s tax ratio from both macroeconomic and redistributive purposes, especially at the sub-national level.

·        The 15th Finance Commission has thus recommended a slew of fiscal reforms to increase the tax-to-GDP ratio, especially through an overhaul of the goods and services tax.

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