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FISCAL POLICY( BUDGET, TAXATION,LOSSES)

 FISCAL POLICY

  • Policy related to income and expenditure of the government is called Fiscal Policy.

  • It is implemented through the Budget.

  • The main source of government income is Tax.

                                                                      Tax

  • That mandatory payment made to the government in return for which no goods or services are directly taken.

Tax System:

  1. Progressive Tax:

    • When the tax rate also increases with the increase in income, then it is called Progressive Tax.

    • This reduces income inequality in society.

    • e.g: Income Tax.

  2. Regressive Tax:

    • If a person with higher income pays a smaller portion of his income in tax and a person with lower income pays a larger portion of his income in tax, such taxes are called Regressive Tax.

    • e.g: GST.

    • This increases income inequality in society.

  3. Proportional Tax:

    • When all persons pay an equal portion of their income in tax, it is called Proportional Taxe.

    • e.g.capital gain tax

    • This has no effect on income inequality.

  4. Specific Tax:

    • If tax is imposed on the basis of physical characteristics of the commodity, then it is called Specific Tax. For example - on the basis of length, width, weight etc.

    • e.g: Tax imposed on cigarettes [Length].

  5. Ad Valorem Tax:

    • When tax is imposed on the basis of value, then it is called Ad Valorem Tax.

    • e.g: GST.

# Types Of Taxes: Taxes are of two types:-

  1. Direct Tax

  2. Indirect Tax

① Direct Tax:

  • The person or institution on which taxes are imposed has to pay the tax, meaning the tax burden cannot be transferred.

  • e.g: Income Tax.

Benefits: (i) This is a progressive tax, meaning it reduces income inequality. 

(ii) There is greater certainty in this.

(iii) Direct taxes can be increased to deal with inflation.

(iv) Results are obtained quickly from changes in this.

Demerits: (i) The motivation to work is discouraged.

 (ii) Ignores contribution to the economy, society and environment.

② Indirect Tax:

  • This tax is imposed on goods and services. In this, the tax burden can be transferred.

  • e.g: GST.

Benefits: (i) Its tax base is large.

 (ii) Some goods and services can be encouraged and some goods and services can be discouraged.

 (iii) Changes in this lead to more change in government income.

Demerits: (i) These taxes are regressive, hence they increase income inequality.

 (ii) Increasing them increases inflation.

 (iii) There is more complexity in them.

Tax on Tax:

  • Tax can also be imposed on Tax by the government. These are of two types:-

  1. Cess (Upkar)

  2. Surcharge (Adhibhar)

Difference between Cess and Surcharge:

Cess

Surcharge

① This is imposed on Tax + Surcharge.                                

① This is imposed on Tax.

② It is imposed for a specific purpose and can                 be spent on the same purpose.

② It is not imposed for a specific purpose.  The government can spend it according to its wish.

③ The money received from this is deposited in               the Public Account.

③ The money received from this is deposited in the Consolidated Fund of India.

  • e.g: Swachh Bharat Cess.

  • The money received from Cess and Surcharge is not shared with the states by the Finance Commission.

                                                    FUNDS OF THE GOVERNMENT

  1. Consolidated Fund of India:

    • This is the main fund of the government.

    • Its discussion is done in Article 266.

    • All types of income of the government, loans taken by the government, loans recovered by the government are deposited in this.

    • Permission of Parliament (Lok Sabha) is necessary for expenditure from this.

  2. Public Account:

    • In this, the government plays the role of a Banker.

    • The money can be spent for the same purpose for which it is deposited.

    • Its discussion is done in Article 266.                                                                                                                                                                                           e.g. Disinvestment, Pension Fund, Cess, Money Order.

  3. Contingency Fund of India:

    • It was created to meet accidental/sudden expenses.     e.g. War, National Calamity.

    • This fund is under the President. But it is operated by the Finance Secretary.

Ministry of Finance has 5 departments:

  1. Economic Affairs

  2. Revenue

  3. Expenditure

  4. Financial Services

  5. Department of Investment and Public Asset Management (DIPAM)

  • The senior-most officer from each department is given the status of Finance Secretary.

  • Current Finance Secretary = Hasmukh Adhia [Note: As per notes]

  • Each department is under an IAS officer who is called Secretary.

  • Revenue Department is under them.

  1. 500 Crore rupees are kept in the Contingency Fund.
  2. Its discussion is in Article 267.

                                                                                    BUDGET


  • It is made from the French word Bougittee which means Leather Bag.

  • The word Budget has not been used in the Constitution.

  • It is a popular word.

  • The first Budget in India was presented by James Wilson in 1860.

  • The first Budget in Independent India was presented by Shanmukham Chetty in Nov, 1947.

  • The Budget is presented on the first working day of Feb.

  • Before 2017, it was presented on the last working day of Feb.

  • The Budget is presented at 11 AM in the morning.

  • Before 1999, the budget was presented at 5 PM in the evening.

  • On the day the budget is presented, first of all, a speech is read by the Finance Minister.

  • This speech is in two parts:-

    • Part - A

    • Part - B

  • Part - A contains general information related to the economy and government announcements.

  • Part - B contains matters related to tax.

  • Before presenting the budget, the Economic Survey is presented in the Parliament (Lok Sabha).

  • The Economic Survey is prepared by the Chief Economic Advisor.

  • Arvind Subramanian is the Chief Economic Advisor at present.

  • All documents related to the budget are prepared by the Department of Economic Affairs [Budget Section].

  • On the day the budget is presented, three documents are placed in the Lok Sabha by the Finance Minister:-

① Annual Financial Statement:

  • Its discussion is done in Article 112 of the Constitution.

  • It contains the account of the income and expenditure of the government.

  • Data for three years are presented in this:-

    • Previous Financial Year (Actual)

    • Current Financial Year (Budget/Revised)

    • Next Financial Year (Budget Estimate)

  • The data for the current and upcoming years are estimates and the data for the previous financial year are actual.

② Appropriation Bill:

  • It contains information regarding the expenditure of the government.

  • Through this, permission for expenditure is taken from the Parliament (Lok Sabha).

  • Each expenditure is presented in the form of a Demand.

  • Discussion is held on each demand and voting is done on it.

  • After voting, the Demand is converted into a Grant.

  • This is a type of Money Bill.

  • Its discussion is done in Article 266 and 114.

③ Finance Bill:

  • Through this, changes related to tax are made.

  • Its discussion is done in Article 265 and 117.

  • This is also a type of Money Bill.

  • The day the Appropriation Bill and Finance Bill are passed, the Budget is considered passed on the same day.

Vote On Account:

  • In the year when the budget is passed after 31 March, then permission for short-term mandatory expenses is taken through Vote on Account.

  • Its validity is 2-4 months.

  • Its discussion is done in Article 116.

Interim Budget:

  • This budget is presented in the election year.

  • No major changes related to the economy are made in this.

  • Its validity is 12 months although the new government can terminate it earlier as well.

Rail Budget:

  • It was presented for income and expenditure related to Railways.

  • In 1921, the Acworth Committee related to Railways was formed, on whose recommendation the Rail Budget was separated from the General Budget in 1924.

  • Because -

    1. 85% share of the budget belonged to Railways.

    2. Foreign investment in Railways was high

    • .In 2017, the Rail Budget was merged into the General Budget.[On the recommendation of Bibek Debroy Committee (2016)]

      • Member of NITI Aayog.

      • Chairman of Prime Minister's Economic Advisory Council (created for the first time in 2004). (First Chairman was Suresh Tendulkar).

  • Members of PM's Economic Advisory Council:

    1. Ratan P. Watal -> Chairman of the committee formed to promote Digital Payment.

    2. Surjit Bhalla

    3. Rathin Roy

    4. Ashima Goyal

  • Rail Budget was merged into General Budget because -

    1. Presenting the Rail Budget is not a constitutional obligation.

    2. Rail Budget had become irrelevant because the share of Rail Budget was only 15% of the total budget.

    3. Defence Budget was more than Rail Budget, yet it is not presented separately.

    4. Foreign investment in Railways is negligible.

  • Benefits:

    1. Rail Budget had become a platform for populist announcements due to which the cost of Railways increased and new investment could not be made.

    2. A separate institution was created for the determination of fares. 

  1. Integrated policy for the transport sector can be made.

  2. A dividend of 10,000 Crore rupees was given by Railways to the Government. After the merger, there is no need to give this dividend.

# Main Deficits of Budget:

① Revenue Deficit:

  • The difference between Revenue Expenditure and Revenue Receipts is called Revenue Deficit.

  • Revenue Deficit = Revenue Expenditure - Revenue Receipt

② Fiscal Deficit:

  • The total liability of the government created in a financial year is called Fiscal Deficit.

  • Fiscal Deficit = RE + CE - RR - Non Debt CR

  • Fiscal Deficit = Revenue Expenditure + Capital Expenditure - Revenue Receipt - Non Debt Capital Receipt

  • This is the main indicator of the government/economy.

  • Its use is being done since 1997.

  • It was made the main indicator on the recommendation of the Sukhmoy Chakravarty Committee.

③ Effective Revenue Deficit:

  • When the grants given to states are removed from the Revenue Deficit, then it is called Effective Revenue Deficit.

  • Its use is being done since 2012.

  • ERD = FD - Grant Paid

④ Primary Deficit:

  • When the interest paid is removed from the Fiscal Deficit, then the result is Primary Deficit.

  • Primary Deficit = Fiscal Deficit - Interest Paid


Deficit Financing:

  • Some deficit is deliberately kept by the government so that government expenditure can be increased and demand can be generated in the market.

  • It is used to deal with economic recession.

  • It was used to fight (deal with) the economic recession of 1929.

  • This theory was given by economist J.M. Keynes.

Effects of High Fiscal Deficit:

  1. The debt burden is transferred to the coming generation.

  2. This reduces the credibility of the government, so it becomes difficult to take loans in the future.

    • Credibility is determined by the Credit Rating Agency.

    • e.g. Moodys, Standards and Poors, Fitch, CRISIL

  3. This increases government expenditure, which increases inflation.

  4. To increase tax revenue, the government can increase the tax rate, this will discourage investment.

  • Increasing the tax rate does not ensure an increase in the government's income.


  1. Management of internal debts is done by the RBI.

    • For this, RBI creates pressure on banks to buy government securities. This is called Financial Repression of banks.

  2. Loan availability for the private sector decreases, leading to a decrease in private investment.

    • This is called the Crowding Out Effect.

  3. If loans are taken from external sources, then their repayment is also done in foreign currency, this reduces foreign exchange reserves. The Indian currency will become weak.

FRBM Act (Fiscal Responsibility and Budgetary Management Act, 2003):

  • In this law, targets for Fiscal Deficit and Revenue Deficit were determined:-

    • Fiscal Deficit = 3% (by 2008-09)

    • Revenue Deficit = 0% (by 2008-09)

  • Changes were made in the targets of this law from time to time:-

  • In 2012, instead of Revenue Deficit, a target was made to make Effective Revenue Deficit zero.

  • The government's credibility was decreasing due to this, so the FRBM Review Committee was constituted [in 2017].

  • Chairman = N.K. Singh

  • Members:

    1. Sumit Bose

    2. Urjit Patel

    3. Arvind Subramanian

    4. Rathin Roy

  • Recommendations:

    1. The target of Fiscal Deficit was kept at 2.5%. It is to be achieved by 2023-24.

    2. A deviation of 0.5% in the target was allowed.

      • This was called the Escape Clause.

      • This provision can be used in some special circumstances.

      • e.g. War, National Calamity, Internal Security, Heavy loss to Agriculture, Structural reforms in the economy.

    3. An Independent Fiscal Council should be constituted to keep an eye on the fiscal management of the government.

    4. The Debt to GDP ratio should be targeted.

      • The Debt to GDP ratio should be 60%.

      • It should be 40% of the Central Government and 20% of the State Government.

      • This recommendation was criticized by committee member Arvind Subramanian.

    5. There is a need to make a new comprehensive law.

PDMA (Public Debt Management Authority):

  • It will be an independent organization that will manage the government's internal and external debts.

  • Its recommendation was made by the B.N. Srikrishna Commission.

  • This commission was formed for legal reforms in the financial sector.

  • Need:

    1. Management of internal debts is done by RBI and management of external debts is done by the government itself, so there was a lack of coordination in this work.

    2. The work of debt management is contradictory to other functions of RBI.

      • e.g. Regulation of Banking Sector.

  • Until this organization is created, its work will be done by PDMC (Public Debt Management Cell).

Finance Commission:

  • Recently the 15th Finance Commission was constituted.

  • Chairman = N.K. Singh

  • Members:

    1. Shaktikanta Das [Former Revenue Secretary of India]

    2. Anoop Singh [Professor of Economics]

    3. Ashok Lahiri [Head of Bandhan Bank]

    4. Ramesh Chand [Member of NITI Aayog]

  • It is a Constitutional Body.

  • It is constituted under Art. 280.

  • Functions:

    1. Will give recommendations for the share of states in central taxes.

    2. Will give suggestions to increase the income of state governments so that local bodies can receive more finance.

    3. Will recommend grants to be given to the state government.

    4. Will study the impact of GST on the revenue of the central and state governments.


# Direct Taxes of Central Government:

Income / Profit

Expenditure 

         Property and Capital Transaction

1. Income Tax

1. Hotel Receipt Tax                 

1. Wealth Tax

2. Corporate Tax

2. Fringe Benefit Tax

2. Security Transaction Tax

3. Minimum Alternative Tax             

3.Gift Tax

3. Commodity Transaction Tax

4.Capital Gain Tax

5.Dividend Distribution Tax

4. Banking Cash Transaction Tax


(I) Income / Profit:

  1. Income Tax:

    • Gross Income: Income received from all sources in a financial year is called Gross Income.

    • Various types of exemptions are removed from this.

      • e.g. Income from agriculture, interest paid for home loan, investment made in savings schemes, LIC etc.

    • The result obtained is called Taxable Income.

    • Taxable Income = Gross Income - Exemption

Tax Rate 

Taxable Income

                               Nil

T.I. < 2.5 Lakh

                               5%

2.5 Lakh < T.I. < 5 Lakh

                               20%

5 Lakh < T.I. < 10 Lakh

                               30%

10 Lakh < T.I. < 50 Lakh

                               30% + 10% Surcharge                                                                                 

50 Lakh < T.I. < 1 Crore

                               30% + 15% Surcharge

T.I. > 1 Crore

  • Health and Education Cess of 4% is imposed on all.

  1. Corporate Tax [Nigam Kar]:

    • This tax is imposed on the Gross Profit of the company or business organization.

    • If the company's turnover is less than 250 Crores, then the Tax Rate will be 25%.

    • If Turnover > 250 Crore -> Tax Rate = 30%.

    • Micro, Small and Medium Enterprises have been benefited from the reduction in tax rate.

  2. Minimum Alternative Tax (MAT):

    • This tax is imposed on such companies that make their taxable profit zero.

    • It was imposed for the first time in 1996.

    • Its current rate is 18.5%.

    • Controversy related to MAT:

      • MAT was imposed by the Indian tax official on Foreign Institutional Investors (FII), due to which foreign investors started leaving the Indian share market.

      • To solve this problem, the A.P. Shah Committee was constituted which recommended that MAT cannot be imposed on FII.

  1. Capital Gains Tax:

    • When an asset or capital is sold, Capital Gains Tax is imposed on the profit made.

    • It is of two types:

      ① Short Term CGT - If the asset is sold before 3 years, then Short Term Capital Gains Tax is imposed [15%].

      ② Long Term CGT - If the asset is sold after 3 years, then Long Term Capital Gains Tax is imposed [20%].

    • In Budget 2018, Long Term CGT was imposed in the share market whose time limit has been kept at 1 year and rate = 10%.

    • Vodafone dispute is related to Capital Gains Tax theft [Tax Avoidance].

    • Vodafone bought 67% stake of Hutchison Essar Limited.

Tax Evasion (Kar Vanchan):

  • If tax is not paid by violating tax rules and laws, then it is called Tax Evasion.

Tax Avoidance:

  • If tax is not paid by taking advantage of the loopholes in tax rules and laws, then it is called Tax Avoidance.

GAAR (GENERAL ANTI - AVOIDANCE RULES):

  • These are general rules to stop Tax Avoidance.

  • According to this, if any business transaction has been done mainly to save Tax, then the government can impose Tax on such transaction.

  • Parthasarathi Shome Committee was formed for GAAR [2013].

  • Its main recommendations are as follows:

    (i) GAAR should be implemented from 2016.

    (ii) GAAR should be prospective, not retrospective.

    (iii) The responsibility of proving Tax Avoidance will be of Tax officials.

    (iv) GAAR should be implemented only in those cases where the tax burden is more than three crores.

  • GAAR has been implemented in India from 1 April, 2017.

  • Implementing GAAR is a type of reform in direct taxes.

  1. Dividend Distribution Tax:

    • When profit is distributed to shareholders by the company, then the government imposes DDT on it [15%].

    • The company distributes the dividend to the shareholders after deducting this tax, therefore it is called Tax Deduction at Source (TDS).

(II) Expenditure Tax:

  • Currently there is no Tax on this.

(III) Property / Capital Transaction Tax:

  1. Wealth Tax:

    • It was abolished in 2015 because the cost of tax collection was high.

  2. Security Transaction Tax:

    • Imposed on transactions done in Share Market or Security Market.

  3. Commodity Transaction Tax:

    • Imposed on transactions done in Commodity Market.

  4. Banking Cash Transaction Tax:

    • Currently it has been abolished.

    • Recommendation to impose it in future was given by Chandrababu Naidu Committee, formed to promote digital payment [2017].

  • Arbind Modi Task Force was constituted for reform in Direct Tax [2018].

  • Functions:

    1. To increase the tax base.

    2. To make the Indian tax system of international standard.

    3. To simplify tax payment.

# Direct Taxes of State Government:

                                    INCOME                                                                                                               PROPERTY 

    1. Agriculture Income                                                                                                       1. Stampe Duty
   2.On Professional                                                                                                                2.Land Revenue 
         (max. 2500Rs.)                                                                                                                 3.Property Tax in urban area

  • In the 14th Finance Commission, a recommendation was made to impose a tax of 12500 on professionals.

# Indirect Taxes of Central Government:

Status before GST:

  1. Basic Custom Duty:

    • It has not been included in GST.

  2. Additional Basic Custom Duty:

    • Included in GST.

  3. Special Additional Basic Custom Duty:

    • Included in GST.

  4. Central Excise Duty:

    • Except for 5 petroleum products, other products have been included in GST.

    • [Crude oil, Natural gas, Petrol, Diesel, Aviation Turbine Fuel]

  5. Additional Excise Duty:

    • Included in GST.

  6. Service Tax:

    • Included in GST.

  7. Central Sales Tax (CST):

    • Included in GST.

    • This is an interstate tax which was imposed on sales.

# Indirect Taxes of State Government:

  1. Sales Tax / Value Added Tax (VAT):

    • Except for petroleum products, the rest have been included in GST.

  2. Excise Duty:

    • On Narcotics/Liquor.

    • Completely outside GST.

  3. Purchase Tax:

    • Included in GST.

  4. Entertainment Tax:

    • Included in GST.

    • [Note: Tax imposed by Local Bodies is also included in GST].

  5. Entry Tax / Octroi (Chungi):

    • Included in GST.

  6. Tax imposed by government on Gambling, Betting and Lottery:

    • Included in GST.

  7. Luxury Tax:

    • Included in GST.

  8. Advertisement Tax:

    • Included in GST.

Taxes which are not included in GST:

  1. Basic Custom Duty

  2. Excise Duty on Petroleum Products

  3. Sales Tax on Narcotics

  4. Electricity Tax

  5. Those taxes of State Govt. which has been transferred to Local Bodies

                                                            GOODS AND SERVICES TAX

Need for GST:

  1. The number of indirect taxes was excessive, due to which tax management was very difficult for businessmen.

  2. Different taxes were imposed by each state, due to which India had become a fragmented market.

  3. Due to the large number of taxes, tax administration was extremely difficult for the government as well.

  4. Tax evasion was high.

  5. The problem of Cascading Effect was seen. Its meaning is:-

    • Imposing Tax on Tax.

    • This effect can be seen in two ways:-

      (i) If the tax base of the Central and State government is different.

    • Example:

      • Price of goods - 100 ₹

      • Central Govt Tax = 10% [100 + 100 x 10%] = 110 ₹

      • State Govt Tax = 10% [110 + 110 x 10% = 121 ₹]

      • = 11 ₹ [10 + 1 -> Tax on Tax]

      • e.g.= Cascading Effect is seen at every level of value addition.

  1. Tax rates were different in states, due to which investment remained concentrated in only a few states. This caused imbalance in development.

Background of GST:

  • In the world, GST was first adopted in France in 1954.

  • In India, the idea of GST was first given by the Vajpayee government in the year 2000.

  • In the budget 2006, it was announced to implement GST by 2010.

  • In the year 2003, Vijay Kelkar Task Force was constituted.

  • It gave its recommendation in 2004.

  • For this, an Empowered Committee of State Finance Ministers was constituted in the year 2008.

  • In the year 2011, the 115th Constitution Amendment Bill was presented in the Parliament.

  • This Constitution Amendment Bill could not be passed.

  • In 2014, the NDA government was formed.

  • The 122nd Constitution Amendment Bill was presented in the Parliament by the NDA government.

  • On 2 Sept, 2016, the 101st Constitution Amendment was done in the Constitution.

  • From 1 July, 2017, GST was implemented in India.

Features of GST:

  1. GST is an integrated tax in which most of the indirect taxes of the Central and State governments have been included.

  2. It is a type of Value Added Tax [VAT] which is imposed at every level of value addition.

  3. GST is imposed on the supply of goods and services.

  4. It is a Destination Based Tax because its benefit is received by the consuming state.

GST is of three types:

(I) Central GST => CGST -> Imposed by Central Government

(II) State GST => SGST -> Imposed by State Government

(III) Integrated GST => IGST -> Imposed by Central Government

  • If the supply of goods or services is done within the same state, then CGST and SGST are imposed.

    • The base of both [CGST & SGST] is the same.

    • This removes the Cascading Effect.

    • When the supply of goods and services is done from one state to another state, then IGST is imposed.

    • Its rate is equal to the sum of CGST and SGST.

    • Collection of IGST is done by the Central Government.

    • The Central Government keeps its share and the share of the state is transferred to the consuming state.

    • IGST is imposed on imports.

    There are five rates of GST:

    1. 0%

    2. 5% -> CGST = 2.5%, SGST = 2.5%

    3. 12% -> CGST = 6%, SGST = 6%

    4. 18% -> CGST = 9%, SGST = 9%

    5. 28% -> CGST = 14%, SGST = 14%

    • Some special rates have been kept on precious stones and gold:                                                                                                    Precious stones = 0.25%                                                                                                                                                                                                                        On Gold = 3%
    • In GST, all transactions are edited online.
    • Those traders whose annual turnover is more than 20 lakhs, it is mandatory for them to register in GST.
    • For North-Eastern states, this limit has been kept at 10 lakhs.
    • Registered traders are given an identification number GSTIN.
    • All types of software and IT infrastructure in GST have been prepared by a company named GSTN.
    • This company (GST Network) is a non-government, non-profit company.

    GST E-way Bill:

    • It is a type of transit Pass which contains information of the sender of goods, receiver, value of goods and type of Tax etc.

    • If any item whose value is more than 50000, is taken to a distance of more than 50 Km., then it is mandatory to generate an e-way bill.

    • E-way bill can be generated through website, mobile application and SMS.

    • Transportation of goods has become easy and takes less time.

    • Exports have been kept at the rate of 0%.

    • This will promote exports.

    GST COUNCIL:

    • It is a Constitutional Body.

    • For this, Art - 279 (A) has been added to the Constitution [Through 101st Constitutional Amendment].

    • All important decisions related to GST are taken by the GST Council.

    • e.g. (i) Determining those indirect taxes which should be included in GST.

    • (ii) Determining the slab/level of GST.

      (iii) Determining the rates of GST on goods and services.

      (iv) Determining that minimum limit above which it is mandatory for traders to register in GST.

      (v) Settling disputes related to GST.

    • The Chairman of the GST Council is the Union Finance Minister.

    • Union Minister of State for Finance and Finance Ministers of all states (including Delhi and Puducherry) are its members.

    • All decisions are taken through voting.

    • The vote value of the Central Government is 1/3 and the vote value of State Governments is 2/3.

    • 75% votes are required to take any decision. Meaning neither the Central Government alone can take any decision nor any decision can be taken without the Central Government.

    • Therefore, GST Council promotes Cooperative Federalism.

    • National Anti-Profiteering Authority (NAPA) has been constituted to stop profiteering in GST.

    • Profiteering - When instead of transferring the tax benefit to the consumer, the trader increases his own profit, then it is called profiteering.

    • First Chairman of NAPA = B.N. Sharma

    # Benefits of GST:

    1. "One Nation - One Tax" principle has been implemented.
    2. Most indirect taxes have been included in GST, making tax compliance easy.
    3. Ease of Doing Business increased [Rank in Index (issued by World Bank) -> 77th rank].
    4. Cascading Effect has been removed due to which goods and services have become cheaper.
    5. Tax management has become easy for the government.
    6. Cost of tax collection has decreased.
    7. All work is being done through electronic medium, so tax evasion has decreased.
    8. Transparency in the tax system has increased, due to which Inspector Raj and corruption have decreased.
    9. The number of taxpayers has increased.
    10. Evasion of Direct Tax can also be reduced.
    11. Government gets various types of information from GST,which can be used for policy-making.
    12. It is mandatory to make a bill to take advantage of GST, hence it promotes consumer protection.
    13. Tax system has become easy with GST, which will increase investment and create new jobs.
    14. It promotes Cooperative Federalism.
    15. GST promotes consumption which increases economic activities and leads to growth in GDP.
    16. IGST is imposed on imports, so imports are discouraged. 0% GST is imposed on exports, so exports are encouraged.

    # Challenges:

    1. GST has 5 levels due to which complexity has increased.

    2. GST rate is high.

    3. Petroleum products and State Government's Excise Duty have been kept out of GST, due to which simplification of the tax system has not been achieved.

    4. Electronic infrastructure is not strong.

    5. Cyber security system is weak.

    FINANCE COMMISSION

    12th Finance Commission -

    Chairman = C. Rangarajan

    Recommendations:

    1. 29.5% amount of Central Taxes should be given to State Governments.

    2. Tax to GDP ratio should be 17.6% by 2009-10.

    3. Debt to GDP ratio should be 75% by 2009-10. 

    4. Targets of FRBM Act should be achieved i.e. Fiscal Deficit 3% and Revenue Deficit 0% should be(by 2008-2009)

    5. Grant of 25000 Crores should be given to Local Bodies. Out of this, 20000 Crores should be given to Panchayati Raj Institutions and 5000 Crores Rupees to Urban Bodies.

    In this Chapter

    FISCAL POLICY( BUDGET, TAXATION,LOSSES)
    No other notes in this chapter.