Harsh Kumar, Bennett University (Times of India Group)
ABSTRACT
Tax reforms play a crucial role in shaping a country's economic landscape, and in India, they have been a recurring focus in policy discussions, aiming to stimulate economic growth, bolster competitiveness, and ensure fiscal stability. This abstract examines the effects of tax reforms on India's economic growth, with a focus on recent developments and prospects. India has witnessed significant tax reforms in recent years, notably the implementation of the Goods and Services Tax (GST) in 2017, which replaced a convoluted system of indirect taxes with a unified tax structure. The GST aimed to simplify tax administration, reduce tax evasion, and facilitate business operations. Additionally, efforts have been made to streamline direct taxes, including corporate tax reductions and simplification of tax frameworks. The impact of tax reforms on India's economic growth is multifaceted. Firstly, such reforms have the potential to stimulate investment and entrepreneurship by cutting down on tax compliance costs and eliminating cascading taxes. Particularly, the introduction of GST has eased the movement of goods across state borders, thereby enhancing supply chain efficiency and lowering transaction costs for businesses, which could spur manufacturing and trade, contributing to overall economic growth.
Furthermore, tax reforms can enhance fiscal discipline and government finances, which are crucial for sustaining economic growth. By broadening the tax base and improving tax compliance, tax revenues can rise, providing the government with funds to invest in critical areas like infrastructure, education, and healthcare – all essential for long-term economic progress. Additionally, a well-designed tax system can incentivize savings and investment, leading to capital accumulation and productivity gains.
However, the impact of tax reforms on economic growth may vary depending on the design and implementation of tax policies. While GST aims to create a unified market, challenges such as compliance issues, technological infrastructure, and administrative capacity persist. Similarly, corporate tax reductions may encourage investment and corporate profitability, but their effectiveness in boosting overall economic growth depends on various factors, including the investment climate, regulatory environment, and global economic conditions. Looking ahead, the success of tax reforms in driving economic growth in India will depend on several factors. These include continued efforts to simplify and rationalize the tax system, improve tax administration and compliance mechanisms, and address structural barriers hindering business growth. Additionally, aligning tax policies with broader economic objectives such as promoting inclusive growth and sustainability is crucial for maximizing the benefits of tax reforms.
