India’s Tax Reform Trajectory: Reflections From The Past And Pathway Ahead
Khushi Suman and Vanya Soni
ABSTRACT
The historical struggle to find an equitable tax system has been a cornerstone in the progression of India’s fiscal policy, which is aimed at procuring socio- economic justice and distributive equity. The study commences with discussions on the historical background that can be applied to study the current system of tax administration and fiscal federalism in India. Additionally, it attempts to examine significant changes in India’s tax system, which had its historical foundation on the principles of redistribution and autonomy. It also attempts to analyse the centralised, extractive and unequal fiscal policies that replaced the indigenous system during colonialism and contributed to the escalation of social inequality, along with placing an array of regressive social hierarchies. Furthermore, it continues with analysing the challenges faced by the post-independence policymakers in formulating new tax policies and modifying the previous ones.
The attempt to rationalise tax levels, widen the tax base and enhance transparency in the general fiscal regime in India in the post-independence period forms a predominant part of the paper. Despite the aspirational goals or modern tax reforms, the actual realisation of socio-economic justice seems difficult. While reforms like GST have their own benefits, they do have negative impacts like disproportionate effect on the poor population, increased cost for essential services, increased compliance burden, and increased burden on small and unorganised businesses. At the same time, while fiscal federalism could bring greater collaboration between the state and the central government, the analysis also shows that tensions between them could act as a major obstacle to the uniform implementation of the policies. To conclude, the research comes forward with the policy recommendation that takes into consideration both historical models and present-day requirements. Recommendations involve the further simplification of the tax codes, recalibration of the exemptions in favour of vulnerable groups and more technical intervention in facilitating the tax administration. Furthermore, it proceeds with suggesting an efficient structure for fiscal federalism in India to achieve better allocation of resources and to curb the rising inequity within the country, especially through greater collaboration and just transparent sharing of revenues between the federal and state governments.
