Reviewing Recent Evidence of the Effect of Taxes on Economic Growth
With the Biden administration proposing a variety of new taxes , it is worth revisiting the literature on how tax A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es impact economic growth. In 2012, we published a review of the evidence , noting that most studies find negative impacts. However, many papers have been written since, some using more sophisticated empirical methods to identify a causal impact of taxes on economic growth. Below we review this new evidence, again confirming our original findings: Taxes, particularly on corporate and individual income, harm economic growth.
The economic impacts of tax changes on economic growth, measured as a change in real GDP or the components of GDP such as consumption and investment, are difficult to measure. Some tax changes occur as a response to economic growth, and looking at a tax cut at a certain point in time could lead to the mistaken conclusion that tax cuts are bad for growth, since tax cuts are often enacted during economic downturns. For this reason, most of the literature in recent years, and reviewed below, has followed the methodology developed in Romer and Romer (2010) : Looking at unanticipated changes in tax policy, which economists refer to as “exogenous shocks.”
There are other methodological challenges as well. Failure to control for other factors that impact economic growth, such as government spending and monetary policy, could understate or overstate the impact of taxes on growth. Some tax changes in particular may have stronger long-run impacts relative to the short run, such as corporate tax changes, and a study with only a limited time series would miss this effect. Finally, tax reforms involve many moving parts: Certain taxes may go up, while others may drop. This can make it difficult to characterize certain reforms as net tax increases or decreases, leading to mistaken interpretations of how taxes impact growth.
We investigate papers in top economics journals and National Bureau of Economic Research (NBER) working papers over the past few years, considering both U.S. and international evidence. This research covers a wide variety of taxes, including income, consumption, and corporate taxation. All seven papers reviewed here find that tax cuts have positive effects on growth, although some papers note that the strength of this effect depends on which taxes are cut, for whom, and when.
Mertens and Olea (2018) used time series data from 1946 to 2012 to estimate the impacts of marginal tax rate The marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. s on individual income. They found that marginal rate cuts led to both increases in real GDP and declines in unemployment. A 1 percentage-point decrease in the tax rate increases real GDP by 0.78 percent by the third year after the tax change. Importantly, they find that changes in income following a tax change are responsive to the marginal rate change regardless of the change in the average tax rate The average tax rate is the total tax paid divided by taxable income. While marginal tax rates show the amount of tax paid on the next dollar earned, average tax rates show the overall share of income paid in taxes. . This illustrates that the positive GDP changes the authors find are the response to changes in the incentives, rather than due to an increase aggregate demand through the consumption channel. Cuts in tax rates for the top 1 percent also have positive impacts on other income groups, consistent with a supply-side narrative of how reductions in top marginal rates can increase incomes for other groups over time. However, tax cuts for the top 1 percent do increase inequality.
Zidar (2019) examines the impact of federal tax burdens on economic growth and labor supply across different income groups and states from 1950-2011. He finds positive impacts of tax cuts on economic growth following two years after the change in policy but finds that tax cuts for low- and moderate-income taxpayers affect growth more than tax cuts for high-income taxpayers. The paper finds that a 1 percent of state GDP tax decrease for the bottom 90 percent of earners increases state GDP by 6.6 percent. Looking at labor supply effects in particular, he finds that a 1 percent of state GDP tax decrease increases labor force participation for the bottom 90 percent of earners by 3.5 percentage points and hours worked by 2 percent. He does not find any significant impact on labor force participation rates, hours worked, or GDP growth for the top 10 percent of earners from a similarly sized tax change, somewhat in contrast to the results found in Mertens and Olea (2018) for top earners.
This result may lead some to assume that Zidar is identifying “Keynesian” effects of tax changes, or aggregate demand effects. However, the paper finds strong effects of tax cuts on real wages as well. As Zidar notes, “the increase in real wages suggests that supply-side responses are important and may exceed demand-side responses to tax changes for the bottom 90%.” Additionally, some may go further and argue that this paper shows that tax cuts for top earners have no impact on growth. However, this paper only looks at short-run impacts of tax changes on GDP and does not consider the broader implication of tax policy on long-run growth, human capital, or innovation. Nonetheless, the paper provides compelling evidence of tax cuts impacting growth through the supply side, consistent with neoclassical economic theory.
Ljungvist and Smolyansky (2018) look at 250 state corporate tax changes from 1970-2010 to assess their impact on employment and income. By comparing nearby counties across states, this allows the authors to isolate the impacts of corporate tax changes relative to other policies that might affect economic growth. They find that a 1 percentage-point cut in statutory corporate tax rates leads to a 0.2 percent increase in employment and a 0.3 percent increase in wages. They find that tax increases are almost uniformly harmful, while tax cuts seem to have their strongest positive impact during recessionary environments. As with some of the other studies discussed here, the paper mainly examines short-runs effects, and it is possible that these positive effects could grow over a longer time horizon.
Gunter et al. (2019) use a data set of 51 countries from 1970-2014 to examine the impacts of value-added taxes (VAT) on economic growth. They find that the effect of taxes on growth are highly non-linear: At low rates with small changes, the effects are essentially zero, but the economic damage grows with a higher initial tax rate and larger rate changes. For this reason, increases in the VAT in countries with high VAT rates, such as much of industrialized Europe, will have more significant impacts on GDP than increases in countries with low VAT rates. These non-linearities imply strong Laffer curve effects: At certain tax rates, further increases beyond that point will actually reduce federal tax revenues. For European industrialized countries, the authors estimate a tax multiplier of -3.6 for two years after a tax change, suggesting that tax cuts strongly stimulate economic activity in these countries.
Nguyen et al. (2021) examine the effects of individual income, corporate, and consumption tax A consumption tax is typically levied on the purchase of goods or services and is paid directly or indirectly by the consumer in the form of retail sales taxes , excise taxes , tariffs , value-added taxes (VAT) , or an income tax where all savings is tax-deductible. es in the United Kingdom from 1973-2009. They find that income tax cuts, defined in their paper as an aggregate of individual and corporate income, have large effects on GDP, private consumption, and investment. A percentage-point cut in the average income tax rate raises GDP by 0.78 percent. The effects of consumption tax cuts are comparatively smaller and did not produce statistically significant effects, but the paper finds that switching from an income to a consumption tax base The tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. has positive effects on growth. Consumption taxes are generally viewed as less distortionary than other forms of taxation, as they do not significantly impact incentives to work and invest that are essential for ensuring long-run economic growth.
Cloyne et al. (2018) study the interwar period of the UK, 1918-1939, a period of high debt and low interest rates, to understand the impact of taxes on economic growth. The British tax system at this time consisted largely of excise tax An excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. es on alcohol, tobacco, and motor vehicles, and to a lesser degree taxes on income and corporate profits. As this time period predates the development of Keynesian macroeconomic theory, tax changes were generally not designed to be countercyclical, but rather focused on balancing the budget, inequality, or enhancing productivity. The authors find that a 1 percentage-point reduction in taxes as a share of GDP increased GDP between 0.5 to 1 percent, rising to 2 percent after one year. While the British economy of a century ago vastly differs from modern economies, this paper does provide compelling evidence of how taxes impact growth in high debt and low interest rate environments.
Alinaghi and Reed (2021) conduct a meta-analysis on the effects of taxes on growth for OECD countries. Their sample includes 979 estimates from 49 studies. Unlike other papers discussed in this review, this paper considers both the effects of taxes and spending on growth. The authors disaggregate policy changes into three categories: tax negative fiscal policies, tax positive fiscal policies, and tax ambiguous fiscal policies. Tax negative fiscal policies include increases to fund unproductive investments, or increases in distortionary taxes combined with a decrease in non-distortionary taxes. Tax positive fiscal policies include tax increases to fund productive investment, decreases in distortionary taxation combined with increases in non-distortionary taxation, or tax increases to reduce the deficit. Tax ambiguous fiscal policies are those where the overall economic effect is unclear. Using these classifications, the authors find a 10 percent decrease in taxes of a tax negative fiscal package increases GDP growth by 0.2 percent. The same sized tax decrease for tax positive fiscal policies reduces GDP growth by 0.2 percent.
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- Publication Is US Trade Policy Reshaping Global Supply Chains ? ( World Bank, Washington, DC, 2023-11-01 ) Freund, Caroline ; Mattoo, Aaditya ; Mulabdic, Alen ; Ruta, Michele This paper examines the reshaping of supply chains using detailed US 10-digit import data (tariff-line level) between 2017 and 2022. The results show that while US-China decoupling in bilateral trade is real, supply chains remain intertwined with China. Over the period, China’s share of US imports fell from 22 to 16 percent. The paper shows that the decline is due to US tariffs. US imports from China are being replaced with imports from large developing countries with revealed comparative advantage in a product. Countries replacing China tend to be deeply integrated into China’s supply chains and are experiencing faster import growth from China, especially in strategic industries. Put differently, to displace China on the export side, countries must embrace China’s supply chains. Within products, the reorientation of trade is consistent with a “China + 1” strategy, as opposed to diversified sourcing across multiple countries. There is some evidence of nearshoring, but it is exclusive to border nations, and there is no consistent evidence of reshoring. Despite the significant reshaping, China remained the top supplier of imported goods to the US in 2022.
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- Publication Inequality of Opportunity and Investment Choices ( World Bank, Washington, DC, 2023-09-19 ) Brock, J. Michelle ; Bussolo, Maurizio Inequality of opportunity leads to misallocation of human capital and can affect economies via its impact on individual economic decision making. This paper studies the impact of inequality of opportunity on investment, using a laboratory experiment. The experiment randomized inequality of opportunity, then subjects chose to invest in a risky asset or savings. The results suggest that inequality of opportunity impacts investment choices only for people who are penalized by their circumstances and only once they learn the impact of inequality of opportunity on their relative position in the income distribution. This disadvantaged group invests more often and invests higher shares of their earnings than the control and advantaged groups. The fact that both inequality of opportunity and knowledge of relative position need to be present for the impact on investment to materialize points to the importance of peer effects. More broadly, the paper highlights the relevance of social preferences for understanding the effects of inequality of opportunity on individual decision making.
- Publication The Effects of Fiscal Policy on Inequality and Poverty in Iraq ( World Bank, Washington, D.C., 2023-10-11 ) Amjad, Beenish ; Cabrera, Maynor ; Phadera, Lokendra This study assesses the distributional impacts of public expenditures and taxes on poverty and inequality in the Republic of Iraq. The analysis uses the Commitment to Equity methodology and is based on the survey and government fiscal administrative data for fiscal year 2017. Results from the analysis show that Iraq’s fiscal policy is modestly progressive. It reduces short-term inequality by 6.7 and 3.0 Gini points with and without including public spending on education and health services. Both results are less than the global and upper-middle-income country averages. However, driven by direct transfers from poverty targeted social safety net cash transfers and generous pension allowances, the fiscal system reduces short-term poverty by 5 percentage points when evaluated using the international poverty line of US$5.5. This is one of the largest in the global and upper-middle-income country databases. These positive short-term results are achieved primarily because households pay almost no taxes. Iraq’s tax revenues are far lower than even the lower-income countries’ average. Unlike in most countries, Iraqi households in all quintiles, even the richest, are net beneficiaries of the fiscal policy. Given oil price volatility and the global movement away from fossil fuels, the high oil dependence and lack of a broader revenue base pose a significant fiscal sustainability challenge in Iraq.
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Informality, Consumption Taxes and Redistribution
Can taxes on consumption redistribute in developing countries? Contrary to consensus, we show that taxing consumption is progressive once we account for informal consumption. Using household expenditure surveys in 32 countries we proxy for informal consumption using the type of store where purchases occur. We find that the budget share spent in informal stores steeply declines with income, so that the effective tax rate of a broad consumption tax rises with income. Our findings imply that the widespread policy of exempting food from taxation cannot be justified on equity grounds in low-income-countries.
We would like to thank Michael Best, Anne Brockmeyer, Roberto Fatal, Rema Hanna, Gordon Hanson, Xavier Jaravel, Michael Keen, Joana Naritomi, Henrik Kleven, Wojciech Kopczuk, Joel Slemrod, Johannes Spin-newijn, Mazhar Waseem and numerous seminar participants for helpful comments. We thank Eva Davoine, Elie Gerschel, Mariana Racimo, Roxanne Rahnama and Alvaro Zuniga for excellent re-search assistance. We gratefully acknowledge financial support from the Weatherhead Center for International Affairs at Harvard University, the World Bank Development Economics’ Research Support Budget, and UKAID through the IFS’s TaxDev Centre. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not represent the views of the World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Replication codes for the paper are available here. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
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The Pros and Cons of a Consumption Tax
Subscribe to the economic studies bulletin, len burman and len burman robert c. pozen director - urban-brookings tax policy center william g. gale william g. gale the arjay and frances fearing miller chair in federal economic policy, senior fellow - economic studies , co-director - urban-brookings tax policy center @williamgale2.
March 3, 2005
- 11 min read
October 2011 – Republican presidential hopeful Herman Cain’s recently proposed “9-9-9” tax plan features a consumption tax. In this March 2005 interview on the NewsHour with Jim Lehrer , Len Burman and William Gale explain what a consumption tax is and discuss the effects one would have on the economy.
Ray Suarez: The president’s advisory panel on tax reform met for the second time today, this time seeking the input of Fed Chairman Alan Greenspan. Greenspan said the tax code needed to be simplified and suggested one idea worth considering was implementing some kind of consumption tax. It’s a broad idea that’s also gained favor among some policymakers in Washington.
For a closer look at consumption taxes, what they are and how they might work, I’m joined by two men who study these issues closely. William Gale is a senior fellow at the Brookings Institution. And Len Burman is a senior fellow at the Urban Institute. They’re the co-directors of the institutes’ Joint Tax Policy Center, which is non-partisan.
And William Gale, why don’t you get us started by just explaining what a consumption tax is, who pays it, what does it tax?
William Gale: What does it tax? A consumption tax essentially taxes people when they spend money. And the income tax you’re fundamentally taxed when you earn money or when you get interest, dividends, capital gains, and so on. And a consumption tax that wouldn’t happen, you would be taxed essentially when you actually spent the money at the store.
Now one way to think about a consumption tax relative to the existing income tax is suppose we had our current system, but we made IRA contribution limits infinity, so you could put as much as us wanted into an IRA and you could take it out for any reason, all right. That to the first order of approximation would be a consumption tax.
Ray Suarez: Okay, Len Burman, first of all, do you buy that definition?
Len Burman: Well, yes, quite close. One thing that Bill left out was that under a consumption tax you’d actually pay tax on money you borrowed at the same time. So you wouldn’t be taxed on your interest, dividends and capital gains, but you wouldn’t be allowed a deduction for interest expense.
And that’s actually an important distinction. We’re actually sort of moving toward that system Bill is talking about, but without the limit on the interest deductions you could actually create a situation where it’s a recipe for unlimited tax shelters, which is not what I think any of the tax reform advocates would like.
Ray Suarez: And for people who are sitting with receipts on week nights and pieces of paper and an adding machine trying to figure out as April 15 looms, this would mean filing a tax return would become a very different business from what it is today.
Len Burman: Yeah, it depends on how you implemented the consumption tax. If you started with our income tax and then said look you’re going to have a deduction for all of your interest dividends, capital gains and you have to include in the tax base the interest expense, it actually could make it more complicated.
Some other variants are you could have a consumption tax where you just pay tax on your spending, a value added tax which they use in Europe and Japan; it’s a variant of a sales tax and it’s actually transparent to individuals, you don’t have to, individuals don have to file tax returns to pay that tax.
But an important distinction is that in Europe, the value added tax is a supplement to the income tax; it’s not a replacement, so people still have to file income tax returns every year.
Ray Suarez: So William Gale, anybody who’s paying sales tax in the 40 states that have it are already pretty familiar with the concept? Is it as simple as just a new sales tax?
William Gale: Not really. The sales taxes that exist in the states may serve the purposes of the states quite well, but they are very poor models for a federal consumption tax. The state sales taxes omit all sorts of spending, typically health, food is often omitted, a variety of other things, housing. Health, food and housing is half of all consumption.
So, if we want to have a consumption tax at the federal level we need to tax a very broad base of consumption, almost all consumption. So, if anything, the state, the experience that the states have with the sales tax tell us that it’s very hard to actually implement a clean simple broad based consumption tax.
Ray Suarez: Well, let’s talk a little about implementation, Len Burman. Alan Greenspan said today getting from the current tax system to a consumption tax raises a challenging set of transition issues. Like what?
Len Burman: Well, if you just say scrap the income tax and replace it with a sales tax or a value added tax, then it would be a huge tax increase on old people, old people who are paying tax on their income as they’re earning it, thinking that when they got to retirement they could spend money and they’d be paying a dollar for everything they bought.
If you replace, Bill actually did some estimates that if you replaced all of our taxes with the sales tax, the sales tax rate would be something like 60 percent, so you could just imagine getting into retirement and finding out the price of all the goods you’re buying is now 60 percent higher than it was the day before. That would be like a 60 percent tax on all of the money that you had saved up over the course of your life. And there are other transition issues too, like the way it affects businesses.
There are variants on the consumption tax, but basically nobody has figured out how to deal with the transition issues without tremendous cost to the Treasury. You can basically say you could have transition rules that would try to protect old people, that would try to protect businesses that have made investments under the old rules that could be harmed under the new system, it would be tremendously expensive.
And in fact, when economists look at the transition from an income tax to consumption tax, most of the gain to productivity comes from this tax on old savings, this tax on old capital, and the reason that Congress got excited about this, because it’s a tax that can’t be avoided, it doesn’t alter people’s behavior. But that’s also the same reason why people think it’s so unfair, you can’t get out of it, and it’s basically changing the rules after you’ve been making decisions over a whole life.
Ray Suarez: Well, the president asked his new tax commission to create a revenue neutral model for changing the tax code, meaning that he didn’t want the federal government to collect more taxes, about the same.
But underneath that umbrella, would people be paying roughly the same amount of tax if we move to a consumption tax? Or are we assuming that different people would pay more or less than they used to pay?
William Gale: In theory you can set up a consumption tax to have any group of households pay it. In the real world, every consumption tax out there is going to hit low and middle income households to a greater extent than the income tax does.
Ray Suarez: Why?
William Gale: For two reasons: One is that, well, the main reason is that low and middle income households consume more of their income than high income households do. Another way of saying that is high income households save more of their income than low income households do.
So if you move the tax from income to consumption, you’re raising the relative burden on low savers, which are low and moderate income households, so almost any revenue neutral shift from the income tax to a consumption tax will be regressive in that manner. There are ways, there are conceptual ways to do it that doesn’t add burdens to low and middle income households, but I don’t think that they would actually happen.
Ray Suarez: Well, right now a lot of low income people pay no federal income tax, but they do buy things. Does that mean that they’re almost inevitably going to pay a consumption tax?
William Gale: That’s a very good example. A family of four doesn’t pay any federal income tax until their income is in the 20s or 30s, something like that. If you go to a national sales tax or value added tax, they’d be paying that tax on the very first dollar that they buy.
Now, again, there’s a way to insulate them from that by giving each household cash payments, but no country in the world actually does that. So in the real world, consumption taxes end up being more regressive than income taxes, although Len and I or anyone else could design a consumption tax on paper that wasn’t like that.
Ray Suarez: Len Burman, the Fed chairman said today that one effect of changing the tax code in this way, moving away from income tax to consumption tax, would be to change people’s economic behavior by making it make more sense to save and less sense to spend.
Do we know that that’s really what would happen, and how would it change what makes sense to do in the economy when you have this different kind of tax?
Len Burman: Well, a lot of economists favor a consumption tax because they think it would reduce the penalty on savings. It’s basically savings wouldn’t be taxed, so you have an incentive to do more of it. How much more is, it’s not actually clear; there’s a lot of empirical evidence, research evidence, to suggest that there wouldn’t be a huge increase in savings.
There’s also when you get outside of the economist models, there’s a concern that if we switch, the current system we have now encourages a lot kinds of savings, you get a special break if you put money into a 401-K or your employer puts money in a pension or an IRA.
Under a consumption tax system all savings would be tax-free, it would all be taxed like a 401-K, but the question is if people don’t get the special tax break will they still be putting money into retirement savings and if they don’t, if they just put it in their regular bank account, are they as likely to keep it until retirement, and a lot of people are concerned that in fact without the special tax breaks you could actually end up with less retirement savings and possibly even less savings overall.
The other thing that’s important to note, and the chairman said that there are two things that we needed to do, one is to get people to save more; the other is to get people to work more so as the baby boomers get older they don’t drop out of the labor force. Well, if you’re not taxing savings, inevitably the tax burden has to increase on labor. There’s labor and capital. If capital is exempt, the tax on earnings has to go up. And that means that switching to a consumption tax would penalize working.
So the question is on balance, is the extra incentive to save enough to offset the extra disincentive, the penalty on working? And it’s not clear. In any event it’s not likely to be a very large effect, it’s not going to turbo charge the economy.
Ray Suarez: Well today also the Fed chairman said, William Gale, that there’s likely to be a lot of opposition to this. Who would be, you know, as the two sides line up to do battle, who would be the kind of forces people, institutions who would be against it?
William Gale: Well, it depends on the exact form of the consumption tax. Certainly low and middle income group would be very concerned that their tax burden would go up.
The other groups that would be concerned is anyone who gets a tax break under the current system. Most of these consumption taxes, like a retail sales tax or value added tax or the flat tax, or whatever, talk about cleaning out the tax system, all the special exemptions and deductions and credits and stuff like that. So the charitable sector doesn’t like these things because the charitable contribution disappears.
The entire health sector doesn’t like them because the deductions for health insurance disappear. Businesses, a lot of businesses don’t like tax reform because they lose deductions for payroll taxes and other things. So you have to gore someone’s ox in tax reform, and any time you do that they’re not going to like it.
Ray Suarez: William Gale, Len Burman, gentlemen, thank you both.
William Gale: Thank you.
Len Burman: Thank you.
Urban-Brookings Tax Policy Center
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November 16, 2023
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The Macroeconomic Effects of Income and Consumption Tax Changes
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Informality, Consumption Taxes and Redistribution
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What Is a Consumption Tax?
How Consumption Taxes Work
Example of consumption taxes, types of consumption taxes, benefits of consumption taxes, criticisms of consumption taxes, frequently asked questions (faqs).
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Consumption taxes are taxes levied on purchases of goods and services.
- Consumption taxes are taxes on the purchase of goods and services designed to tax individuals when they spend money rather than when they earn it.
- Examples of consumption taxes include excise taxes, VAT taxes, sales taxes, and taxes on imported goods.
- Consumption taxes may be fairer and simpler than income tax since it is easy to conceal income.
- Consumption taxes may also encourage saving since it discourages spending.
- Some studies indicate that consumption taxes do not encourage saving and adversely affect low-income households.
A consumption tax is a tax levied on goods and services consumed or purchased. Essentially, consumption taxes tax you when you spend money rather than when you earn money, as in the case of income taxes.
Consumption taxes were first introduced in the U.S. in the 1800s and have since been an integral part of the tax system. Globally, though, consumption taxes have a stronger presence and are a very popular form of revenue generation for governments. The United States is unusual in that there is no federal consumption tax on goods and services; it is up to state and local entities to set it up.
Nevertheless, consumption taxes do play a role in raising government funds in the U.S. In the U.S., consumption taxes usually are designed as sales taxes, excise taxes, and taxes on imported goods.
An excise tax is a common form of consumption tax levied on items not considered healthy or wholesome.
In the U.S., a special tax—specifically an excise tax —is levied on tobacco products. Because of the government-imposed tax, a pack of cigarettes at the local convenience store costs more than it would without that tax. These tax rates depend on the state you live in, and there are often local excise taxes, too.
In New York, for example, the state excise tax rate is $4.35 for a pack of 20 cigarettes, and the New York City local excise tax is $1.50 for the same amount. That means you’ll pay $5.85 in taxes on top of the retail price , bringing the retail price to about $10 for a pack of cigarettes.
Other examples of consumption taxes include VAT taxes, sales taxes, and taxes on imported goods.
Revenue from consumption taxes makes up less than 20% of total tax revenue in the U.S. In comparison, as of 2020, consumption taxes make up 32.1% of tax revenue in OECD countries .
Consumption taxes come in several forms, including excise taxes, sales taxes, VAT taxes, and taxes on imported goods. Let’s dive into how they all work.
Excise taxes—also known as “ sin taxes ”—are taxes levied on specific categories of goods or services. Excise taxes can be imposed on the producer, retailer, or consumer and are often used to discourage behaviors considered detrimental. The tax rates vary depending on the state. Examples of excise taxes include taxes on alcohol, tobacco, coal, and gambling.
Sales taxes are taxes levied on the retail sale of goods or services. Unlike excise taxes, sales taxes are not designed to target vices. In the U.S., retail sales taxes are a significant revenue source for state governments, and many allow local counties, cities, and municipalities to add their own separate taxes to the state rate, too. Some governments exempt necessities such as groceries from sales taxes.
Some states, but not many, have little to no sales tax . As of 2022, there are just five states with no sales tax at all: Alaska, Delaware, Montana, New Hampshire, and Oregon.
The value-added tax, or the VAT tax , is a very common consumption tax in European countries . The VAT is very similar to the sales tax in that the tax is ultimately levied at the retail level. The tax, however, is determined by calculating the value added at every stage of production of the product.
Taxes on Imported Goods
Tariffs are taxes levied by one country on goods or services imported from another country. Tariffs are usually paid on raw materials at the producer level or for finished goods at the distributor level. Tariffs differ from import duties, which are consumption taxes paid by retail consumers for imported finished goods.
The U.S. government generates most of its revenue via income taxes, payroll taxes , and corporate income taxes. In other words, most revenue is generated on money earned. This model poses several problems.
First, income is very difficult to measure, especially when complex financial calculations such as capital gains and depreciation are taken into account. Consumption taxes, on the other hand, are relatively easy to quantify: Any time an individual spends money, a portion of the expenditure is remitted to the government.
The consumption tax can also encourage saving. Under the current income-based model, individuals and households are subject to a tax whether or not they are careful to set aside funds for the future. The consumption tax model reverses this paradigm, as money is only taxed when spent, which can encourage people to spend less and save more.
A consumption tax may also be fairer than an income tax. Since income is difficult to measure, it is also easier to hide income and avoid potential taxes therein. Consumption is more difficult to conceal, and since the wealthy generally spend more on goods and services , they are liable to pay more taxes.
The consumption tax can present several drawbacks, too. For example, many people with very low incomes pay no income tax under the current system because of the current threshold. If a consumption tax were to be implemented, low-income people would suddenly have to pay taxes on every purchase.
Since low- and middle-income households spend more of their income than wealthy households, the consumption tax can prove regressive. Research further suggests that even with a switch to a consumption model, savings would not increase significantly.
Which is an example of a consumption tax?
The sales tax is a popular example of a consumption tax. Many states and local governments levy a sales tax, which represents a percentage of the purchase amount for various goods and services.
What does consumption tax mean?
Consumption taxes are taxes that you pay when you purchase goods and services. A consumption tax is designed to tax you when you spend money versus an income tax, which taxes a portion of your wages. Consumption taxes can be targeted to specific products, such as excise taxes, which tax alcohol, tobacco, and gambling.
New York State Department of Taxation and Finance. " Cigarette and Tobacco Products Tax ."
Tax Foundation. " Sources of Government Revenue in the OECD ."
The Tax Foundation. " State and Local Sales Tax Rates, 2022 ."
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- Original Research
- Published: 26 January 2022
Goods and Services Tax (GST) Implementation in India: A SAP–LAP–Twitter Analytic Perspective
- Arun Kumar Deshmukh ORCID: orcid.org/0000-0003-1839-1364 1 ,
- Ashutosh Mohan 1 &
- Ishi Mohan 2
Global Journal of Flexible Systems Management volume 23 , pages 165–183 ( 2022 ) Cite this article
In a federal structure, India's determination to much-needed fiscal reforms has been widely applauded at its face value when she relinquished her previous complex and inefficient tax regime to embrace the long-awaited Goods and Services Tax (GST). It has been a significant economic move post-independence and requires validation of facts after its introduction. The present study aims to present a general macroeconomic analysis of the extent to which the adoption of GST has improved existing tax administration and resultant general economic well-being of a democratic political economy like India in light of innovation implementation theoretical perspective. Further, the study tried to determine how the stakeholders perceived such big-bang reform even after the three years of its adoption. The study attempted to assess to what extent the adoption of GST has indeed influenced the economy in general and citizens and/or consumers in particular while using a case-based qualitative inquiry. The present research applied the situation–actor–process; learning–action–performance analysis framework for the case analysis. The facts reveal that India has observed a tremendous increase in tax base vis-à-vis revenue collection. Yet, some efforts are desired to improve the low tax to GDP ratio, skewed GST payers base, negative stakeholders’ perception of GST (revealed through Twitter sentiment analysis), and the evil of tax evasion. The other merits realized by the economy are presented as benefits to the consumers, MSMEs, improved ease of doing business ranking, and foster make-in-India and AatmanirbharBharat move by the government.
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The economic reforms in India after the 1990s pushed her growth as a globally integrated nation with remarkable improvements in terms of regulatory efficacy, macroeconomic stability, and geopolitical constancy (World Bank, 2019 ). Besides China in the Asian continent, India emerged as one of the fastest-growing economies in the last few decades (Paul & Mas, 2016 ). Fortifying the topsy-turvy yet relatively sustained growth story, India has witnessed phenomenal indirect tax reform (Chikermane, 2018 ) in the past three decades and demonstrated economic resilience by embarking upon another breakthrough in July 2017. According to the experts, after liberalizing the Indian economy in 1991, the Goods and Services Tax (henceforth GST) is a significant taxation turnaround by the Indian government (Jha, 2019 ; Siddiqui, 2018 ). India has traversed a long path to embrace GST as an excellent and long-awaited indirect tax reform aimed at one nation, one tax, and one market (GST Council, 2020a ). The global experience revealed that GST has made the business processes more efficient than ever by simplifying the tax structure and reducing the number of state and central levies (Nutman et al., 2021 ). GST is an indirect and destination-based tax. It appears to have influenced the consumers indirectly and directly impacted the businesses (Fernando & Chukai, 2018 ); however, its ripple effect is being felt across the three core sectors of the economy (Jha, 2019 ).
The complexities and inefficiencies of previous tax regimes in India (Roychowdhury, 2012 ) compelled the authorities to convert the decade-long discussion into reality. The shortcomings were primarily characterized by cascading turnover taxes between the center and states in the federal structure, making the regime less comprehensive (Rao & Chakraborty, 2010 ). The central and state levies had some inherent limitations, such as central taxes could not cover the value addition in goods outside the manufacturing stage, including a few listed services (Deloitte, 2020 ; Roychowdhury, 2012 ). To transform the indirect taxation system, GOI had introduced the long-awaited Goods and Services Tax or GST in July 2017. Sensing its magnificence, FICCI ( 2021 ) called it a big bang economic reform after independence. Despite all merits and demerits of the Indian GST implementation, little understanding exists of its influence on the economy (Kir, 2021 ) in general from the perspective of the stakeholders. Also, a little understanding was observed in the existing body of knowledge, particularly on innovation implementation in the emerging Indian public policy domain even though GST roll-out to be a process innovation in the economic system. It calls for research in the identified field about how fruitful was the introduction and implementation of GST in the economy and the response patterns of the stakeholders.
The present study aims to analyze the extent to which the implementation of GST has improved exiting indirect tax administration and the general economic state of a democratic political economy like India. The way stakeholders have perceived such big-bang economic reform after three years. A theoretical perspective of innovation implementation was applied, citing the context and knowledge gaps concerning a public policy measure in a developing economy. Thus, it attempts to answer two diverse research questions (RQs):
RQ1. How has the implementation of GST affected India's general economic scenario? and
RQ2. How have various stakeholders perceived the new tax regime?
The nature of the research questions asked determines the epistemological ground for the research (Saunders et al., 2019 ). The core aspect of questions mentioned above predominantly belongs to the interpretive paradigm, which requires selecting appropriate methods justifying constructivist ontology (Saunders et al., 2019 ). The SAP–LAP analysis-backed qualitative case-based inquiry meets the methodological and contextual requirements.
The study is organized in various sections and sub-sections comprising a literature review about GST, innovation implementation, and SAP–LAP analysis followed by research methods comprising how SAP–LAP analysis is performed with its framework to answer the above research questions. The result and discussion section elaborates the detailed analysis and interpretation of individual components of the SAP–LAP framework concerning GST implementation.
Review of Literature
This section presents a literature review about GST and indirect taxes, innovation implementation, and SAP–LAP analysis under three sub-sections followed by motivation for this research and gap analysis.
Literature on GST and Indirect Taxes
In public finance, taxes are usually collected as significant revenue sources as direct and indirect taxes. The taxes paid directly by the public, such as corporate income tax, income tax, wealth tax, are referred to as direct taxes. In contrast, indirect tax is essentially consumption-based tax such as value-added tax or VAT, service tax, and customs. The revenues from indirect taxes are shared jointly by the central and state government and some local bodies in the federal structure. In contrast, direct taxes are the central government's subject matter. France implemented GST in 1954, and the same was followed by over 100 countries, including several emerging economies such as Brazil, China, and now India (Kir, 2021 ), after observing its demonstrated success across the globe. Economists noted that a country's development hinges upon the mobilization of tax revenue (Dabla-Norris et al., 2017 ; Schlotterbeck, 2017 ). It is pertinent to ensure stable tax revenues to meet the significant budgetary heads such as healthcare, infrastructure, and education. The increasing tax revenue leads to economic growth and development (Besley and Persson, 2009 ; Gaspar et al., 2016 ; Milios, 2021 ). Also, enhancing tax collection is crucial (Akitoby et al., 2018 ; Fenochietto & Pessino, 2013 ) to attain the Sustainable Development Goals (SDGs) propounded by United Nations. Therefore, an economy is expected to have an efficient tax policy and administration. However, the tax structure differs across the continents and countries (Besley & Persson, 2009 ; Fenochietto & Pessino, 2013 ). Sindzingre ( 2007 ) pinpointed that Asian developmental states do not rely on high levels of taxation, which is characterized by their capacity to commit and intervene credibly in policies directed toward growth rather than a tax.
Research by Onaolapo et al. ( 2013 ) revealed that the adoption of value-added tax showed a statistically significant influence on revenue generation in the Nigerian context. The study also pinpointed the need for dedicated and integrated efforts from the stakeholders to improve VAT collections. The study also analyzed how value-added tax impacted revenue generation in Nigeria. They asserted that the consumption-based taxes should be assessed on different considerations such as administrative feasibility, relative revenue potential, voluntary compliance, for better implementation. These considerations also equally apply to GST implementation.
Some of the cross-sectional studies with panel data and case studies were conducted to analyze the impact of socio-political determinants, tax policy, economic dynamics, and economic structure in an economy (Garg, 2019 ; Kir, 2021 ; Kulkarni, & Apsingekar, 2021 ). Plenty of studies unveiled the relationship among factors influencing the revenue outcome while highlighting the complexities in separating the relevant determinants (Crandall & Kidd, 2006 ; Dom, 2018 , 2019 ). The study conducted by Gupta ( 2007 ) explored the relationship between economic development and the structure of the tax revenue realization in developing countries and asserted a positive correlation between per capita GDP and revenue.
Research by Dabla-Norris et al. ( 2017 ) evaluated the firm performance changes due to the tax compliance burden in 21 countries using VAT and corporate tax rates to control tax policy. Investigating the effect of tax policy changes on revenues, the study also emphasized on an association between policy reforms and revenue growth in the emerging economies (Akitoby et al., 2018 ) and maintained that policy reforms can be increased with the rising rate of indirect tax, changing the type of tax being levied, and decreasing level of exemptions. The studies measuring the impact of VAT found mixed results as some observed growth in the revenue (Ebeke et al., 2016 ; Schlotterbeck, 2017 ) while others found it insignificant (Ngoma & Krsic, 2017 ). Some studies emphasized how socio-political factors determine the extent of revenue collected relative to GDP and asserted that the Gini coefficient was negatively correlated with the revenue collections (Fenochietto & Pessino, 2013 ). Nonetheless, not enough literature could be located in the Indian context expounding implementing a tax administration policy and associated indicators.
The early research analyzing the impact of GST implementation on the Indian economy was limited and utilized only nascent and generic indicators (Bindal & Gupta, 2018 ; Dash, 2017 ; Mishra, 2018 ) to demonstrate whether GST has attained the desired outcome after implementation. The other studies were highly sectoral and regional (Garg, 2019 ; Kulkarni & Apsingekar, 2021 ). In addition, expounding the situation after the implementation of GST, The New Indian Express ( 2021 ), in its report on GST, mentioned that the government's bonafide intentions back GST yet, technical glitches and design-related flaws caused ineffective execution during its early phase. The technical malfunction also caused fake invoicing by some business enterprises. Despite all advantages, some significant implementation flaws include technical glitches, frequent changes in the rules, malfunction of input tax credit claim system, multiple tax slabs and frequent changes in items covered under these slabs, etc. (Financial Express, 2019 ; The New Indian Express, 2021 ). Many businesses have to confront multiple litigations due to a lack of clarity on various rules and their varied interpretations in different states. This aroused interest in conducting the study to unearth several theoretical and practical learnings that may lead to future research.
Having cited the above literature, the researchers observed a lack of primary and secondary literature linking indirect tax reform in an economy and its economic impact. The studies cited primarily belong to tertiary literature, which was used to establish the viewpoint. However, due to the nascent stage of GST implementation in India, it becomes difficult to deploy quantitative panel data analysis. Therefore, the study analyzed GST implementation in the economy using a factual SAP–LAP qualitative framework and Twitter sentiment analysis using the stakeholders' perception mapping. It was an exploratory inquiry to advance understanding of a less explored phenomenon with an innovation implementation-led theoretical perspective.
Literature on Innovation Implementation
Considering GST as a process innovation in a macroeconomic context, the present research cited relevant studies to analyze the status of GST after three years of implementation. The previous research on innovation implementation revolves primarily around the organizational contexts (Chung et al., 2017 ; Damanpour & Schneider, 2006 ; Dhir et al., 2020 ; Malaviya & Wadhwa, 2005 ; Singh et al., 2021a , b ), with a slight possibility for being adapted in the context of an economy. An economy akin to an enterprise needs to constantly innovate its key processes to sustain and be competitive in a contemporary environment characterized by ever-changing technology and handling of economic operations (Chung et al., 2017 ; Krawczyk-Sokolowska et al., 2021 ). Emerging economies such as India possess numerous possibilities for innovation on several fronts including the micro- and macro-level (Dhir et al., 2020 , 2021 ). Past studies have shown that innovation keeps the system competitive and is necessary to propel superior performance (Birkinshaw et al., 2008 ; Dhir et al., 2021 ).
Nevertheless, assessing the innovation-specific outcomes is intriguing in a system at both levels. It can be analyzed with its apparent characteristics, such as the effectiveness of implementation and point of innovation itself in terms of benefits derived from it (Klein & Sorra, 1996 c.f. Chung et al., 2017 ). It is asserted that approximately two-thirds of the innovations go unsuccessful and pose a financial burden on the system (Altuwaijria & Khorsheed, 2012 ). The entities implementing the invention are bound to fail to attain desired benefits due to failure of innovation or implementation (Chung et al., 2017 ).
The introduction of GST in India is a process innovation of continuous nature, depending heavily upon the principles of appropriateness, accessibility, and affordability (Fannin, 2016 ). Also, Singh and Dhir ( 2021 ) pointed that studies addressing innovation implementation focused on specific organizational contexts, including manufacturing (Dwivedi et al., 2019 ; Jamwal et al., 2019 ), Entrepreneurship (Parameswar et al., 2019 ; Singh et al., 2019 ), health (Birken et al., 2015 ; Pradhan et al., 2019 ), transportation (Shankar et al., 2019 ), financial inclusion (Malik et al., 2019 ), and ERP implementation (Nagpal et al., 2019 ). However, studies cited in the public policy domain were scanty (Singla & Hooda, 2018 ; Sushil, 2008 ; Sushil, 2019 , Suri & Sushil, 2012 ; Suri & Sushil, 2008 ). The extant literature in this field further revealed that most of the studies on innovation implementation were conducted in the developed economies and, therefore, exhibit the strategies adopted in that context, which cannot be replicated in the emerging economy scenario (Singh et al., 2021a , b ). The key differences must be thoroughly analyzed due to contextual variations in terms of demographics, infrastructural, regulatory policies, etc., for ensuring implementation of the innovation (Dhir et al., 2020 ).
Further, from the theoretical standpoint, the implementation of innovation literature has widely used dynamic capability theory to examine how the organization can adapt its knowledge base in response to environmental changes (Teece et al., 1997 ; Teece, 2018 c.f. Singh et al., 2021a , b ). The effectiveness of such implementation can be measured using the degree to which the desired outcomes are realized (Singh et al., 2021a , b ). According to Piening ( 2011 ), the implementation of an innovation, technology, or practice necessitates the creation of new routines for desired outcomes, as was the case of GST, where the government revamped all previous processes (routine). The system continuously tracks the systemic and process-related flaws in GST implementation such as technical glitches, erroneous input-tax credit claim mechanism, multiple tax slabs with frequently changing specified items. (The New Indian Express, 2021 ). The studies primarily adopted dynamic capability theory (Teece et al., 1997 ), the resource-based view (Chichkanov et al., 2021 ), grounded theory (Deloitte, 2020 ), etc., to understand the implementation. Yet, studies in public policy-related aspects are limited in numbers (Singla & Hooda, 2018 ), requiring further investigation to analyze the same. Thus, the previous literature revealed some significant research gaps in innovation implementation comprising context gap and knowledge or theory gap. The present research aims at bridging such gaps in the context of GST implementation using an SAP–LAP framework to investigate the degree to which the GST implementation as a process innovation in public policy has impacted the general state of the economy.
Literature on SAP–LAP Analysis
The SAP–LAP framework for analysis was initially developed by Sushil ( 2000 ) and Sushil ( 2001a ). The present study uses the SAP–LAP framework (Fig. 1 ) to analyze the pre- and post-GST implementation scenario to evaluate the system's efficacy and suggest enhancements. Several scholars in the past applied SAP–LAP analysis tools to study such situations and developed valuable solutions. The selected pioneering and prominent studies are presented in Table 1 , which exhibits the cross-context and cross-concept use of the technique.
Source : adapted from Sushil, 2014
SAP- LAP Framework.
The study utilizes a case-based review approach to analyze India's indirect taxation policy framework and associated indicators. The analysis is performed with an interpretive method known as SAP–LAP (situation, actor, process and learning, action, performance) framework developed by Sushil ( 2000 ). The SAP–LAP method was widely used by the researchers in case-based studies (Anand et al., 2018 ; Charan, 2012 ; Chavan et al., 2019 ; Kanda & Deshmukh, 2007 ; Anand et al., 2018 ; Naik & Srivastava, 2017 ; Pramod & Banwet, 2010 ; Sushil, 2019 ; Suri & Sushil, 2008 ). As described by Sushil ( 2009 ), “SAP–LAP is a generic framework which can be used in various contexts, such as problem-solving, change management, be used as generalized statements for the similar cases in the future by proper synthesis” (p. 11). SAP–LAP application has not been limited to the business verticals only but applied the least in the public policy domain (Chand et al., 2018 ; Chavan et al., 2019 ; Suri & Sushil, 2008 ).
3. Research Methods
The paper focuses on exploring the present state of GST implementation in India by the government on completing its three years. The paper follows SAP–LAP framework-based qualitative design. The study used a step-by-step approach to review extant literature to understand how the past scholars have conceptualized and theorized such a phenomenon. To critically examine the initiatives about indirect taxation and GST mainly, the authors reviewed the publications of the GST Network, Central Board of Indirect Taxes & customs (CBIC), National Institution for Transforming India (NITI) Aayog, World Bank, International Monitory Fund (IMF), and relevant policy documents. An attempt was made to pinpoint the gaps and plausible implications on business and society by using the excerpts from literature and discussing with experts and stakeholders affected by GST implementation. Since the emphasis was on assuming the implementation at the last mile beside the experts, the opinions of retailers complying with GST and consumers who are indirectly paying it were considered. The existing framework gaps were recorded through 30 experts, 200 retailers, and 1000 customers. The key criterion for selecting the respondents was their direct and/or indirect involvement in GST-related regulation or compliance.
More so, to add a qualitative dimension to the SAP–LAP-based research and gauge the sentiments of different stakeholders on completion of its three years of GST, the authors have added analyses of tweets, especially as part of the situation analysis and learning synthesis. The study performs the Twitter analysis of the posts containing #GST and its associated sentiment analysis to identify how the stakeholders, including the business community vis-à-vis the common public on social media platforms, perceived the roll-out and the implementation of GST in India by the government. The researchers performed the data scrapping from Twitter with basic Tweepy (Application Programming Interface or API). The application software used in the process was NVivo (NCapture tool). It enables capturing the tweets using a #hashtag across the timelines. For this research, the restriction kept was the tweets with #GST from India. The present study captured one week's random tweets after completing three years for analysis. The purpose was to see the polarity of the sentiments after three years of GST roll-out in a random data scrapping.
SAP–LAP Analysis Framework
The SAP–LAP framework for analysis was initially developed by Sushil ( 2000 ). The expansion of the acronym SAP–LAP refers to a situation that indicates the internal and/or external environment. The external environment may include social, technological, economic, political, and natural environmental factors. In comparison, the internal environment may consist of organization-specific factors such as resources, capabilities, employees, organizational structure, and design. When considering India as an entity for analysis under this framework, the introduction of GST can be taken as a constituent of a situation aspect, and its macroeconomic, socio-political, technological impacts can be considered as the external consequences. Further, keeping the temporal orientation into account, the situation can be referred to as what has happened? what is going on? and what is expected?
The actors in the framework are people, agents, or stakeholders directly or indirectly related to the case situation under consideration. They either influence the condition or are affected by the situation. The stakeholders involved are the government, including the finance ministry, administrators, and policymakers in the GST network, business owners or managers, customers or the general public. It is indeed a highly complex web of actors in one of the largest democracies like India. The third aspect in the framework processes refers to how the situation-specific input transforms into output due to the courses of action initiated by the 'actors.' The actors enjoy the freedom of choice to transform a situation and bring about a change in the situation hand. In this context, the GST collection process, refund or input credit process, audit process, taxpayer complaint resolution process, GST council reform process, etc., are examples of various processes involved. The key actors are expected to strengthen and optimize the strategies to enhance the situation continuously.
The interaction and synthesis of the situation–actor–process framework guide the learning–action–performance framework (Sushil, 2000 , 2019 ). The first alphabet in the LAP framework stands for learning, which refers to a thorough comprehension of the core issues, problems, and challenges of SAP. It can be referred to as an outcome of the meticulous investigation of the individual components vis-à-vis the collective interplay of SAP. The learning component usually includes the generalizable output for execution or insights on specific situations or objectives. The action is all about converting the learning insights into practice to eradicate the existing systemic deficiencies. It may emphasize enhancing the current processes by improving efficiency and effectiveness.
Moreover, the action component of the framework helps in the development of some actionable policies or guidelines. The action taken will impact the performance, which can be observed through enhanced productivity, efficiency, effectiveness, higher profitability in general and better fiscal discipline, and resultant higher revenue generation in particular. It can be inferred that how flexibility in the system improves the overall performance (Evans & Bahrami, 2020 ; Sushil, 2019 ) and, as a result, how India ranks better in terms of governance, ease of doing business, and systemic transparency by applying the SAP–LAP analysis.
Results and Discussion
Low taxes-to-gdp ratio.
The World Bank statistics (2017–2019) on taxes as a percent of GDP reveals that India needs to increase its share of taxes in GDP at par with most of its developing counterparts. It further reported that the developed countries' ratio is greater than 10 percent compared to India’s 7.8 percent (Table 2 ) and far below the OECD average of 34% (The Economic Times, 2020 , January). This ratio indicates how well a government can finance its expenditure, reducing the borrowing. The higher proportion shows faster economic development as it enhances the government's ability to finance the expenditure.
The data obtained from the official sources were analyzed and compared with the previous tax regime to answer the first research question. The analysis is presented in Table 2 and Fig. 2 revealing the government's fiscal parameters, taxes as a percent of GDP. The answer to the second research question is addressed in the upcoming sub-section nested in case-based SAP–LAP analysis.
Source compiled from the data accessed from https://www.indiabudget.gov.in
Taxes as a percent of GDP in Post-GST Era.
Table 2 exhibits the gross and net tax revenue from 2014–2015 to 2019–2020 and their share in GDP for the corresponding year. The above data highlighted the rising revenue vis-à-vis is rising cost of collection and a corresponding reduction in the net figures from 2017 to 2018, which can be attributed to the GST implementation. In 2018–2019, the gross tax to GDP ratio was 10.9, indicating a 16 percent fall in tax revenue from the budget estimates. The reduction is due to a shortfall in GST collection (Financial Express, 2019 ). The revenue growth also corresponds to the contribution of GDP figure, which hovers between 6 and 8% for net tax revenue, far below expectations. It indicates the need for further improvement to enhance the tax revenue collections.
Component-Wise GST Collection
Figure 3 depicts the component-wise GST collections in the three fiscals from July 1, 2017, to June 2020. In India, the GST council divided GST into three components: Central GST or CGST, State GST or SGST, Integrated GST or IGST. The CGST represents the share of the central government, SGST indicates the state government’s claim, whereas IGST is collected on inter-state movement of goods and/or delivery of services. As shown in Fig. 3 , the collection of IGST is highest among all across the three years, followed by SGST, CGST and cess. The cess is a minor component charged along with GST in India.
Source Compiled by authors using GOI data
Component-wise GST Revenue collection.
Lopsided GST Payers
The recent analysis on the contribution of various business forms in the total GST collection (Fig. 4 ) reveals that 62.8% of GST revenue comes from public and private limited companies, accounting for a meager 5.89% of the total taxpayer population. The remaining 94.11% of taxpayers contribute 37.2% of the total GST revenue. The proprietorship business holds a significant population with a GST contribution of 13.35%. The other considerable contributors are public sector undertakings (PSUs) and partnership firms. The data unfold several interesting insights for the policymakers on future policy decisions.
Source : www.gst.gov.in
GST Contribution from Different Forms of Business.
Presently, GST implementation is still in its infancy and needs several policy-level improvements to keep taxation inefficiencies and evasion at bay. The authorities should first prioritize solving the significant contributors' problem so that the flow of revenue remains unperturbed and then shift to increasing the tax base keeping the macroeconomic indicators into consideration. It will gradually enhance the efficiency and effectiveness of the indirect taxation system.
Grasp of Twitter Data
Besides the quantitative studies in the public policy domain, researchers started exploring the qualitative data generated through social media due to its ability to help decision-makers understand the acceptance of the particular policy by different stakeholders (Singh et al., 2020 ). Also, the policymakers have begun to recognize their social media presence and the responses of users and subscribers (Fig. 5 ). Several scholars such as Das and Kolya ( 2017 ), Durán-Vaca, and Ballesteros-Ricaurte ( 2019 ), and Das et al. ( 2020 ) have attempted to study the influence of the taxation-related aspects using social media analytics. Another study by Shakeel and Karwal ( 2016 ) examined the Indian union budget sentiment analysis 2016–2017. Das and Kolya ( 2017 ), Singh et al. ( 2019 ), and Das et al. ( 2020 ) primarily analyzed the Twitter data to understand the sentiment of the general public concerning GST. The startup ecosystem in India was thoroughly investigated by Singh et al. ( 2020 ) using Twitter analytics. Such studies revealed the rising trend of research using social network-based qualitative data. To assess the acceptance level of a particular phenomenon, researchers have a wide variety of choices to gather data such as interviews, surveys, and observation. However, whether positive or negative, collecting data objectively is challenging to infer. On the other hand, the data extracted from social networks reveal the polarity of likes and/or dislikes.
Source GST Council (2020b)
GST on social media.
The widely used social network-based sentiment analysis tool is Twitter analytics. It utilizes Natural Language Processing (NLP) to identify and extract personal information from multiple documents. It is capable of automatic massive tweet classification to generate positive, negative, or neutral polarity according to the language used in the text (Durán-Vaca, & Ballesteros-Ricaurte, 2019 ). It helps in knowing the emotion or opinion of the audience about the underlying subject. It is also evident through the social media statistics displayed on the official website of GST in Fig. 5 that the majority of the subscribers/followers comes from Twitter, followed by YouTube and Facebook.
As revealed in Table 3 , the sentiment analysis output indicated that a total of 1056 tweets were finally considered for analysis using NVivo. Most responses, i.e., 704 tweets, are either very negative or moderately pessimistic, while only 352 are recorded positively. Such sentiments are revealed based on the words used by the users in their tweets. Nineteen thousand one hundred ninety-seven negative comments were used to analyze the coding of terms indicated in the table. In contrast, only 7775 positive words were used concerning GST, resulting in various stakeholders' low sentiment index for GST. It also indicated that such responses might be due to a lack of awareness and reactive ones resulting from resistance to change in the transition.
The sectoral analysis showed that MSMEs face several challenges in adapting to the GST, which must be considered. As reported by experts and taxpayers, some other challenges associated with GST are long time lag in refunds, adaption and development of IT ecosystem, especially by the MSMEs, inability of the system to curb tax evasion, etc. As part of the situation analysis, the above issues and challenges require the concerned actors' action to improve.
In a federal structure, taxes are the subject matter of the union and the states. Therefore, while counting the actors, both are considered and referred to as the ‘government’ in general for the analysis. The other actors in this context are the business executives engaged in the compliance referred to here as ‘business’ and the customers who are paying the taxes indirectly and the society at large. In this tri-partite arrangement, the government is the prime actor while the latter are the complying parties. A systemic change in the name of GST necessitates the active involvement of prime actors in process design that attracts minimal resistance from the affected ones and manages the innovation implementation effectively.
The appropriation of GST is such that both center and state share equally. According to existing arrangements, for instance, if the tax rate is 18%, 9% CGST will go to the central government, whereas 9% SGST will be credited to state government accounts for intra-state transactions. On the other hand, inter-state transactions are dealt with under integrated GST or IGST in which the destination state and the central government share the revenue as mentioned above. Due to the complexity of transactions, especially when multiple states are involved in the trades, sometimes calls for more robust processes to deal with the input credit-related issues. The role of actors from government, both center and state, has become more prominent in resolving such matters. The problems related to revenue sharing and compensation to conditions during the COVID-19 pandemic intensified, for which the authorities are developing a robust mechanism. As a prime-mover, the Goods & Services Tax Council or GST Council-a constitutional body to regulate the various aspects of GST and its nationwide implementation plays a pivotal role. The Union Finance Minister of India chairs the council, and other members include the Union State Minister of Finance or Taxation of all the states. GST council along with the CBIC has played a significant role in the implementation process of GST in India.
The government has taken several interventions and initiatives to improve the implementation process of GST in India. GST is the most extensive indirect tax reform in India's history, which required the integration of a nationwide diverse taxation portfolio into a single taxation system. Goods and Service Tax Network or GSTN was created to enable building a platform to meet various stakeholders' GST-related needs and smoothly facilitate the complex transaction. All the GST processes are covered under the highly diverse responsibilities of GSTN. They range from GST system application design, development and operation to IT infrastructure procurement, ensuring systemic resilience against failure and disaster, helpdesk setup and procedures, training and capacity building, backend system assessment for all the states and union territories, etc. (Fig. 6 ). Precisely, GSTN is designed to provide guidance and direction on policies and governance principles.
Source GST Council Knowledge Resources
Distribution of Work under GST.
Initially, GSTN was set up as a private company by the government but later acquired a majority stake. It provides three front-end services to the taxpayers: registration, payment, and return. The front-end solution is also assigned to develop a backend IT module for all the states/Union Territories. Infosys is selected as a Managed Service Provider or MSP for this project. A total of 73 IT/ITeS and fintech companies and one commissioner of commercial taxes (Karnataka) are impaneled as GST Suvidha Providers or GSPs to provide solutions across the nation. The role of these GSPs is to develop applications to be used by taxpayers who can facilitate interaction with GSTN. Figure 6 exhibits the work allocation under GST.
Besides process-related general measures expounded earlier, some of the specific issues addressed by the actors (primarily the government) are being highlighted as—a gradual increase in the coverage and the scope of GST in the form of inclusion and exclusion of commodities and services; revision in the coverage of various base rates keeping the consumer sensitivity into account. Likewise, the mechanism for dividing IGST collection between center and state is being negotiated by the central and the state government in the various meetings of the GST council. Accordingly, the center is working out the long-pending due to states (The Economic Times, 2020 ).
Since the government is generating the lion's share of GST revenue (63% approx.) from the public and private sector companies, their significant attention is toward resolving issues they are confronting first. The government is also developing ways to formalize the informal sectors to enhance the tax base (GST Council, 2020b ) to tame lopsided GST payers. In addition to this, the government needs a mechanism that can facilitate to meaningfully engage the stakeholders on such policy matters, which will create awareness and bust the myths being spread associated with the new fiscal policy instruments such as GST.
A detailed analysis of the situation presents several issues and challenges associated with the GST implementation, prevailing even after 3 years. Some of the critical challenges are presented in this section.
Need for More Robust IT System
For easy and speedy compliance, IT holds a significant role to play. Many companies, especially the MSMEs in the unorganized sector, lack adequate IT infrastructure. It calls for an efficient IT system for user-friendly tax administration. Presently, GSTN is serving as a particular purpose vehicle to facilitate the businesses in this, yet more selective support is desired.
Need for Skilled Human Resources
Even after three years of implementation of GST, the country is facing an acute scarcity of skilled workforce in IT and accounting. India has an adequate number of IT professionals, but a shortage of qualified accountants can help businesses deal with the new compliance norms.
Ambiguity in GST Provisions
GST subsumed 17 different levies to ease the compliance and remove the cascading effect in taxation. The system needs clarity on several aspects such as precise categorization of goods and services, and tax rates for various goods and services are yet to be fixed. Every next GST council meet comes up with newer agenda for dealing. Moreover, the shift from origin-based to destination-based taxation was not easy to implement in India's largest markets. Now, taxes are being collected based on the consumption of goods and services irrespective of their place of production, which caused a loss of revenue for industrial states. The council resolved that the central government would compensate such a loss of revenue for the initial few years. Also, there has been a demand from several pressure groups to bring high revenue items such as petrol, petroleum products, and alcohol under the ambit of GST, which is still under discussion.
Tackling the RNR Conundrum
It is challenging for the government to balance inflation and net revenue loss to attain an optimal revenue-neutral rate or RNR. RNR is referred to as a rate at which the government's revenue through the new tax regime (GST in this case) will be equal to the preceding taxation regime. It directly affects the fiscal policy and inflation rate (Kumar et al., 2018 ). The higher RNR causes a loss of competitive edge for India domestically vis-à-vis globally (Bhattacharya, 2017 cited from Kumar et al., 2018 ). The higher cost will push inflation and, in turn, badly affect the purchasing power. Narula ( 2016 ) asserted that RNR is one of the most significant GST implementation challenges and maintains that the government should ensure no revenue loss while adopting to a new taxation regime.
Lack of Awareness Among the Stakeholders
The Twitter sentiment analysis revealed that many stakeholders perceived the roll-out of GST negatively. One of the reasons could have been the lack of proper awareness about the new tax regime. Lourdunathan and Xavier ( 2017 ) suggested that India, a democratic country, should clarify its citizens about the recent amendments. Due to a lack of awareness, the citizens sometimes pay more taxes than required, especially in the rural areas and subsequent knowledge of which leads them to wear a negative perception of the tax regime.
After thoroughly analyzing the situation and the process, discussing the actions initiated to improve GST implementation is pertinent. The government of India, through GST council and CBIC backed by GSTN, has ensured the following changes.
Flexibility and Simplification of Compliances
The authorities have allowed taxpayers to comply during the transition by extending the deadline for filing returns and reconciliation by introducing the simplified return filing system and the nationwide e-way bill. The AI-based chatbot GITA or GST Interactive Technical Assistant trains the taxpayers' interaction easily and speedily. This way, the website visitors can interact and settle their issues without much workforce involvement after the introduction of the facility in June 2020.
Relief to MSMEs
The extension in registration threshold limit, introduction and extension of composition scheme to service providers have been taken well by the taxpayers, which proved to be a significant relief measure for MSMEs. Moreover, offering speedy solutions to the MSMEs' issues, GoI has already constituted a Group of Ministers (GoM) that thematically takes account of the situation in this regard. In another move, it was decided by the government that GSTN would provide free accounting and billing software to small taxpayers.
Rationalization of GST Rates
The rates of GST were decided considering the nature of commodities. Some of the entities classified as necessities were suitably reviewed and moved from the high tax bracket (18–28%) to the low-tax bracket, which several stakeholders took as a welcome move. In the 36th meeting of the GST Council in July 2019, the rate rationalization moves to emphasize and promote clean energy by council. The council decided to reduce the GST rates on electric vehicles from 12 to 5% and charger/charging stations from 18 to 5%.
Mobilization of Revenue
A Group of Ministers or GoM was constituted to study the revenue trend and assess the underlying reasons behind structural patterns influencing the revenue collection in some states. It would include looking at plausible reasons behind the deviation of the revenue collection targets from basic assumptions.
E-Way Bill System for Efficient Compliance
The GST council introduced an electronic way or e-way bill system from April 1, 2018, initially for all inter-state movement of goods that now covers intra-state movements. This initiative aimed to allow the movement of goods across the nation, which resulted in hassle-free transportation. The E-way bill was a monumental shift from the departmental policing model to the self-declaration model, reducing high administration costs.
Some Penal Measures
From August 21, 2018, the council decided to have a system barring the generation of the e-way bill if a recipient or supplier does not file a GST return for two consecutive tax periods. It resulted in regularity and timeliness of compliance by the taxpayers.
Anti-profiteering Mechanism by Establishing National Anti-profiteering Authority (NAA)
It was also observed that in many countries, GST implementation resulted in an inflationary trend despite a provision of an input tax credit. The meticulous analysis revealed that it has happened because of the non-passing of the benefits to the consumers by suppliers involved in the profiteering. Ideally, the benefit of increased input tax credit or decrease in tax rate should pass to the recipient. When it does not pass to the recipient, it is treated as illegal profiteering. The central government constituted NAA to examine the non-passing of the benefits of reduced tax incidence or increase in input tax credit under GST.
Composition Scheme for Small Business and Services Suppliers
The scheme envisaged for the small businessmen who are a supplier of goods and restaurant services. In this, business with turnover up to Rs. 1.5 crore required to pay taxes equal to 1–5% on the turnover and required to make quarterly payments from FY 2019–2020 and file the return annually. In the case of service suppliers, a person has a turnover of up to Rs. 50 lakh to pay a tax equal to 6 percent on the turnover and required to pay quarterly with the annual filing of the returns.
The Mechanism for Government Accounts Settlement
Periodic account settlement between Centre and State is done. Adjustments and differences related to SGST and IGST are considered so that both center and the state get their due share of tax revenues. The fund transfer is done based on the information contained in the returns filed.
Capacity Building Efforts by CBIC
The CBIC has played a significant role in drafting GST law, especially IGST and CGST law under the center’s purview. With the rising number of taxpayers, CBIC has also suitably scaled up its IT infrastructure to deal with massive data and other related challenges. CBIC is working on an ambitious project worth Rs. 2256 crore for re-engineering its existing software and planning to replace it with all new ‘SAKSHAM’ for GST. Such capacity-building initiatives facilitate the smooth transition in the innovation implementation saga at the macroeconomic level.
Having analyzed the situation, actors, processes, the authors presented learning and action taken. The present section deals with specific aspects of the action taken, which enhanced the performance. The performance analysis can be taken as benefits being realized by various stakeholders in the economy.
VAT and GST: Comparison of Two Regimes
Table 4 presents a precise comparison of the total collections of the two tax regimes, i.e., pre-GST era up to June 2017, where the taxpayers have to comply with a multiplicity of taxes and post-GST era wherein GST subsumed the other taxes with effect from July 2017 onward. In the pre-GST regime, payers have to comply with significant taxes such as value-added tax or VAT, service tax, central sales tax or CST, octroi and 14 more such state and local levies. The comparison explicitly reveals a sharp upswing in GST revenues between 2017 and 2020 compared with the taxes collected between 2014 and 2017. For instance, if the revenue figures for 2016–2017 and 2017–2018 are to be compared, there is a sharp rise of more than 30 percent. Similarly, the collections for 2018–2019 record growth of more than 60% over the previous fiscal (Fig. 7 ). The increase in the revenue also points out toward the widening tax base and reducing tax evasion incidences.
Revenue comparison between GST and VAT + Taxes (in Rs. Crore)
The difference is vast, which is higher even after accounting for corresponding inflation and GDP growth rate. The data presented for the year 2017–2018 represent the tax revenues for only one quarter (April–June 2017) as this was the final quarter of the previous tax regime. Likewise, the data indicated for 2020–2021 is also for a single quarter (April–June 2020). The data also demonstrates a sudden decline in revenues through GST in the quarter due to the COVID-19 nationwide lockdown and the resultant extension of the deadlines by the government, which may exhibit a hike in the next quarter. The GST figures include central GST, state GST, integrated GST, and cess, a revenue-sharing mechanism designed by the GST council in India.
Benefits for the Consumers
The removal of cascading effects in preceding tax regimes (CENVAT, state VAT, service tax, etc.) has benefited the consumer the most. Consequently, the prices of several products have come down considerably. The reduced prices have contributed to more consumer surplus and may accumulate greater purchasing power soon.
Performance on Ease of Doing Business
The one nation, one tax, one market formula to bring uniformity and simplicity, GST reduced multiple taxes and fewer exemptions. The compliance cost also came down significantly with the unification of the tax regime. It also resulted in convenient record-keeping and gradually automated compliance through the processes such as registration, return, and refund. All interactions are routed through the GSTN portal resulted in lesser public interference between tax administration and taxpayers. Due to the online filing of returns, the compliance environment has improved.
Such online processes have reduced the dependency on time-consuming paperwork and contributed to building a more robust taxation system. Moreover, it led to quicker online verification of input credit. These endeavors collectively enhanced India's position in the World Bank's ease of doing business performance index by 79 positions from 142 in 2014 to 63 in 2019 (IBEF, 2020 ).
Benefits to MSMEs and New Entrepreneurs
With an increase in GST registration threshold for small businesses having annual aggregate turnover of more than rupees forty lakhs in the case of goods suppliers and rupees twenty lakhs in the case of service suppliers. A single registration is required under GST, which is more straightforward than the previous regime of multiple compliances. The composition scheme for some businesses has also proved beneficial for several firms.
Fostering Make in India and Aatmanirbhar Moves
GST led to creating a unified common market, which attracted investment from foreign players as well as national corporations in various industries, which led to pursuing the Make in India initiative and AatmanirbharBharat (Self-reliant India) move for the government. Barring a few short-term exceptions due to the COVID-19 pandemic, India observed an aggregate demand boost. However, the rise in manufacturing activity and employment could not be attained as expected before the GST introduction. It has gainfully improved the country's overall investment climate, and it will subsequently benefit the states.
Implications and Conclusion
GST is assumed to be significant indirect tax reform to propel the economic growth engine, promisingly replacing the intriguingly complex and multi-layers taxation regime with a much simpler, transparent, and tech-driven administration. The present study's analysis revealed that the benefits observed due to its implementation would remove the impediments to inter-state trade and thereby project India as a common market and realize the vision of one nation, one tax, and one market. The study indicates that GST implementation is on its way to attaining the set objectives of unification of the Indian market, simplifying the compliance procedure, and enhancing the tax base to finance the developmental aspiration of the nation. The outcomes indicated that the GST being a process innovation has been implemented well hitherto with some temporal adjustments as the effectiveness of implementation hinges on the extent to which the stated objectives are attained, which is consistent with the implementation-related study by Singh et al. ( 2021a , b ). However, it is too early to say that introduction of GST has led to the attainment of these targets yet the preliminary analysis illustrates that it has been a promising move. It is evident through some of the key economic indicators mentioned in the SAP–LAP analysis that within the short span of the GST regime, the government could expand its tax base without hurting the stakeholders' sentiment and attain a much better ranking on the ease of doing business while nurturing MSMEs. Additionally, the processes involved, such as GST collection, refund or input credit, audit process, GST council reforms, GST Network, taxpayers' complaints, require continuous improvement and time bound re-engineering to meet changing business requirements.
The LAP synthesis revealed first the situation-based learning, which demands a robust IT system to tame the evaders and miscreants such as recent fake invoicing fiasco. It has reduced the chances of error and enhanced faceless and timely verification. The frequent changes in the GST provisions, on the one hand, offer flexibility, but at the same time, it causes troublesome transactions for the enterprises. As revealed from the Twitter sentiment analysis results that the stakeholders exhibited a declivity toward the GST implementation, which can be the outcome of lack of awareness and a typical tendency of inherent resistance to change for the new system. The innovation implementation literature also necessitates the constructive engagement of the stakeholders to ensure its success which is consistent with the study by Chung et al. ( 2017 ).
The action taken includes the introduction of flexibility and simplicity in the compliance mechanism as and when desired. The e-way bill system also facilitated efficient compliance and partially overcame the issues related to tax evasion. Nonetheless, the GST regime should establish a robust design with solid checks and balances to eradicate the evaders and promote good tax governance ultimately. Furthermore, the capacity-building efforts by the CBIC are yet to show up the outcomes which may be public after the implementation of the ambitious SAKSHAM system. The performance analysis explicitly exhibited the superiority of the GST regime over the past VAT regime on several dimensions. The GST implementation has immensely benefitted the consumers, MSMEs, and new enterprises by removing multiple compliance requirements through process simplification and thereby improving India's ease-of-doing-business ranking. To achieve the ambitious Make-in-India and Aatmanirbhar Bharat goals, GST can prove to be a gamechanger, provided the efforts are directed toward eradicating the systemic loopholes.
The theoretical implications of the study are evident through its propensity to address the knowledge gap encompassing an exploratory case-based inquiry linking GST implementation and economic scenario in the Indian context. It also established that the implementation issues require constant supervision and immediate action. The findings drawn from SAP–LAP analysis are also consistent with the report conceptualized by CAG ( 2019 ) presented through Fig. 8 is self-explanatory, exhibiting the extent to which the objectives of GST roll-out are attained. It mentions that the two significant market objectives, unification and simplification of the tax structure, have been achieved well except with a slight fallout on simplified form and procedure. However, the other objective about IT compliance is partially completed with some fallout. The actors must make a collaborative endeavor (Singh and Dhir, 2021 ) to create a simplified IT-enabled process to attain the last and most important objective (Fig. 8 ). Although such problems are expected during the transition phase of implementation through IT as observed in the previous research by Anand et al. ( 2018 ), Suri ( 2005 ), Suri and Sushil ( 2012 ), and Suri and Sushil ( 2008 ), which are commonly related to implementation hurdles due to ineffective change management strategies (Siddiqui, 2018 ; Singh et al., 2020 ).
Source CAG, 2019 — https://cag.gov.in/
Objectives of GST roll-out, achievement, Impact, and fallout.
Furthermore, the study advances an understanding of how SAP–LAP analysis can analyze the fiscal policy issues applying a blended method approach to establish a multi-stakeholder perspective on GST implementation through Twitter analytics coupled with SAP–LAP. Future studies may advance such a combined perspective to draw more inclusive research outcomes. The study also highlighted the social networking site such as Twitter as a powerful medium to meaningfully connect with the stakeholders in policy implementation at large. Also, the study advanced the understanding of innovation implementation research from enterprise context to the macroeconomic context for an economy which may be taken as an incremental extension of theoretical knowledge on policy execution. Nonetheless, the present study, primarily qualitative, neither delves upon the impact of GST implementation on the macroeconomic and fiscal parameters nor attempted to analyze it on any specific microeconomic indicator. Also, GST implementation in India is still in the introduction phase; therefore, not enough panel data could be generated to establish the relationship between GST tax reform and economic growth using econometric modeling. Future studies can show the relationship between the two indicators using quantitative or econometric modeling to ensure the broader generalizability of the findings. More so, the effectiveness of the GST implementation can be measured by quantitatively comparing the set objectives with several fiscal indicators.
How has the implementation of GST affected India's general economic scenario?
How have various stakeholders perceived the new tax regime?
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The research is a part of a funded research project from Indian council of Social Science Research (ICSSR), India and Ministry of Human Resource Development (now, Ministry of Education) under Institute of Eminence (IoE), Banaras Hindu University. The authors gratefully acknowledge the opportunity given by ICSSR and MHRD/MoE to conduct academic research on GST implementation in India and provide inputs for policymaking for improving the existing state of GST implementation.
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Deshmukh, A.K., Mohan, A. & Mohan, I. Goods and Services Tax (GST) Implementation in India: A SAP–LAP–Twitter Analytic Perspective. Glob J Flex Syst Manag 23 , 165–183 (2022). https://doi.org/10.1007/s40171-021-00297-3
Received : 30 May 2021
Accepted : 29 December 2021
Published : 26 January 2022
Issue Date : June 2022
DOI : https://doi.org/10.1007/s40171-021-00297-3
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Progressive Consumption Tax Research Paper
Introduction, strengths of progressive consumption tax, weaknesses of progressive consumption tax.
A consumption tax is a duty on goods and services spent by a household. It can be of direct forms like sales and value-added taxes or indirect forms like expenditure taxes.
Frank consumption tax suggestion involves taxpayers summing up their total incomes on a return form and only Frank would offer saving exemptions from this taxable income thus leaving consumption as the taxation base. It also considers a large standard deduction thus cutting on nonluxury rents and foods (Frank, 2011).
First, it instills a savings culture in residents as they are mandated to open accounts for tax-exempt earnings. This discourages excessive consumption. In addition, consumption tax encourages the capital formation and work thereby increasing economic growth.
Third, consumption taxes have a wider base, easier to implement as all consumption levels are taxed and it is considered a major revenue source for government and local authorities.
Fourth, consumption taxes do not alter spending tradition, behavior patterns, and scarce resource allocation. It is based on the assumption that consumption is already taxed and so it does not matter which product is consumed.
Fifth, consumption taxes increases productivity, capital stock, and the size of the economy which is directly related to its treatment of depreciation (Frank, 2011).
Sixth, progressive consumption tax minimizes inequality in consumption spending. It also has an inverse implication on wealth inequality as the rich could take advantage of this savings exemption.
Seventh, progressive consumption tax reduces the financial pressure on middle-level workers. These workers usually spend beyond their means to equate with their expensive neighborhoods.
Finally, tax incentives may result in economic recession due to a reduction in consumption levels. However, residents would only profit from a provisional consumption tax cut if they spend immediately (Economic policy reforms: Going for growth, 2012).
First, the higher marginal tax rates dampen productive economic activities. For instance, a 100% marginal tax rate means that hard-working taxpayers are taxed more than lazy ones thus demoralizing workers lowering consumption (Frank, 2011).
Secondly, consumption and sales taxes shift the tax burden to low-income groups. However, the ratio of tax commitment reduces as wealth increases, and citizens who consume all their earnings are taxed at 100 percent while savers and investors are taxed at a remaining balance (Cockfield, 2008; Frank, 2011).
Third, consumption is directly proportional to long-run average income levels. Therefore any abrupt changes in the household income levels within a given year result in payment of higher income. Changes in annual income may originate from the sale of fixed assets like homes, annual bonuses (Frank, 2011).
Fourth, this tax has many exemptions and loopholes which hinder its efficient operations. All savings are tax-exempt thereby contrasting income tax which covers salaries, wages, and income irrespective of its usage (Bird and smart, n.d).
Fifth, a higher and consistent revenue gain requires a higher taxation high taxation rate. But this high rate usually discourages individual investment and savings. Finally, the consumption rates start at a lower level and steeply rise. This usually endangers middle-income earners while low-income earners are tax-exempt although they receive major government benefits.
Bird, R. and Smart, M. (n.d.). Tax policy and tax research in Canada . Web.
Cockfield, A. J. (2008). Examining policy options for the taxation of outbound direct investment . Web.
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Frank, R. (2011). The Darwin Economy: Liberty, Competition, and the Common Good. Princeton University Press. Print.
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IvyPanda. (2022, April 29). Progressive Consumption Tax. https://ivypanda.com/essays/progressive-consumption-tax/
"Progressive Consumption Tax." IvyPanda , 29 Apr. 2022, ivypanda.com/essays/progressive-consumption-tax/.
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IvyPanda . 2022. "Progressive Consumption Tax." April 29, 2022. https://ivypanda.com/essays/progressive-consumption-tax/.
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IvyPanda . "Progressive Consumption Tax." April 29, 2022. https://ivypanda.com/essays/progressive-consumption-tax/.
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Symbiosis Centre for Media & Communications -Pramana Research Conference 2024- Call for Papers
REIMAGINING MEDIA: NARRATIVES ON THE MARGINALIZED AND INCLUSIVITY IN THE MEDIA AND CONSUMPTION INDUSTRIES
The many emergent voices in Indian media shape contemporary discourses on gender, consumption, economy, narratives, race, language, caste and identities. Such voices help contribute to how we view and understand the world, especially in the way inequalities are encountered and perpetuated by contemporary media, resulting in representational signals that reimagine the status quo. In this, the role of film, social media and brand communications appear to have been more significant, when compared to their conventional mainstream counterparts, such as print and broadcast media. The second edition of SCMC’s Pramana Research Conference strives to examine the contemporary construction of inclusivity in both cultural and business contexts, simultaneously looking at media representations as well as consumption practices. In a combined Call for Papers to educators, researchers and academicians, the Pramana Conference aims to explore the role and potential of ‘change agents’ as guides who influence the consumers’ imagination of intersectionality and inclusivity, unravel socio-cultural marginalization.
Theme 1: The Marginalized in Contemporary Indian Media
Social and cultural marginalizations of various types exist in all complex societies, including India; and with the advent of modern public life, many such enduring, yet historically changing, deeply ingrained marginalizations practiced in the subcontinent have been matters of significant discussion. The presence of constitutional and legal safeguards has not however amounted to such consciousness permeating into the social fabric, which continues to promote socially ingrained privileges, while keeping the conversation about discrimination and marginalization on the periphery. Many media industries remained overwhelmingly populated by privileged, educated social elites (Kureel 2021, Kumar 2009) and popular cinema narratives remained aligned to privileged social groups, with few tokenistic representations of lower social groups. The Mandal agitations of early 1990s and the immediately preceding militant anti-caste movements compelled representational space to lower caste and class groups, their realities and specificities. Simultaneously, this is also the moment when Dalit literature burst onto the Indian literary scene as an unavoidable force to reckon with. It is in the longue-durée context of this gradual emergence of representation of caste, gender and the marginalized in Indian public life that we want to situate our discussion of the politics of representation in contemporary Indian media: including in cinema, broadcast media, print and digital journalism, digital content and social media platforms. We especially want to delve into the use of the contemporary mediascape by socially marginalized groups for self-assertion and representation.
Topics (but not limited to):
- Contemporary Media Representation: Portrayals of the Marginalized in News, Entertainment, and Popular Culture;
- The Marginalized in the Digital Spaces: Online Platforms and Social Media Networks;
- Marginalized Groups and Journalism: Study of Caste-based Biases etc. and Reporting in Indian Media;
- Social Media Activism: Assessment of Social Media's Role in Mobilizing Anti-caste Movements etc. and Raising Awareness;
- The Marginalized, Media, and Policy: Evaluation of Policies Addressing caste-related and other issues in the media sector;
- Intersectionality, Class and Caste: Analysis of how these intersect with other identity markers in media representations;
- Marginalization and Hate: Examination of dogwhistling, hate speech and cyberbullying on Social Media;
- Media Initiatives for Social Change: Case studies of media projects promoting inclusivity and social equality.
Theme 2: Inclusivity in Brand Ecosystems: Structural and Marketplace Influences, Representational Narratives, and New-age Brand Philosophies
The integration of social awareness has emerged as a pivotal guiding principle for contemporary marketing strategies and this has led practitioners to shift their branding strategies towards content and communication that cater to varied sub-cultures and socially disadvantaged consumer groups. Despite this, many societal groups remain stereotyped, misportrayed and under-represented, with invasive and harmful imagery continuing to surface in the world of brand communication, media and branded content. Presently, there is a growing body of case studies and anecdotal evidence that show that inclusive marketing practices have a discernible impact across various dimensions of marketing (Thompson 2021). Many scholars specializing in marketing, such as Licsandru and Cui (2018) and Kuppelwieser and Klaus (2020), further developed and enhanced the theoretical framework underlying this notion. Despite extensive global research conducted in various areas such as inclusive marketing, there remains a notable dearth of comprehensive research in the field of inclusive branding and communication within mainstream marketing theory. We would like to enhance the field’s research potentials through the exploration of connections between existing research-based studies on inclusive brand communication and the development of research frameworks which aim at broadening the scope of inclusive brand communication as a practical domain. The track will focus on understanding the role of inclusivity’s contribution to social progress and brand growth, and its influence in shaping effective brand communication.
- Exploring the internal and external motivation of brands to leverage inclusive marketing and communication;
- Effectiveness and efficiency of media platform to communicate inclusivity and consumers perception of the same;
- Inclusivity in Corporate Communications, employee relations and stakeholder relationships;
- Role of inclusive marketing communication in Advocacy and Internal Communication stakeholder management etc.;
- Marginalized groups in social and cultural space, Advertising, and Marketing: Exploration of marginalized-centric marketing strategies and their effects on consumers;
- Marginalized, Labour and Media Industry: The stratifications of Marginalized, class, linguistic, regions and caste in the labour hierarchy of various Indian media;
- Factors driving the effectiveness of inclusive advertising campaigns, DEI (Diversity, equity, and inclusion) in the media agencies;
- Role of AI (artificial intelligence) as enabling or hindering advertising inclusivity;
- Discussing the power dynamics between communication industry, government, politics, and consumer activists in promoting, negotiating, or resisting diversity and inclusivity movements.
Abstract Submission: Interested contributors are invited to submit an abstract of their proposed paper (250-300 words) along with a brief bio-note (50 words).
Completed papers should be between 6,000 to 8,000 words, inclusive of references and citations can be submitted for a Conference compendium. Submissions must adhere to the APA style guidelines. We welcome original research, discussion notes, unpublished work, working papers etc.
Abstract Submission Deadline: 30 th November, 2023
Notification of Acceptance: 15 th December, 2023
Conference Date: 19 th and 20 th January, 2024
Please submit your abstract and bio-note as a Word document to [email protected] . Submissions will undergo a double-blind peer-review process, and selected researchers will be notified duly.
Symbiosis Campus in Viman Nagar situated in Pune.
The conference registration details will be announced after the acceptance of abstracts.
Please submit your abstract and bio-note as a Word document to [email protected]. Submissions will undergo a double-blind peer-review process, and selected researchers will be notified duly.
CONFERENCE VENUE: Symbiosis Campus in Viman Nagar situated in Pune.
REGISTRATION: The conference registration details will be announced after the acceptance of abstracts.
CONTACT INFORMATION: For any inquiries regarding the conference or submission process, please contact [email protected].