Goods and services tax, cascading, and revenue performance: Analyzing Indian commodity taxation market

Abstract

Indian economy has finally introduced an improvised value-added tax commonly known as goods and services tax (GST) with an explicit focus to target cascading. Cascading is by far the most serious issue of a tax structure as it leads to many other challenges like opaqueness, complexity, evasion besides deadweight losses. GST is a fiscal policy reform aimed at integrating and harmonizing the Indian tax structure and hence reduce the incidence of cascading. This study is an attempt to empirically analyze the possible impacts of GST on the cascading and hence revenue collection in the Indian economy. The study has employed a simple but representative simultaneous equation model representing the commodity taxation using time series data from 1990 to 2017. This study finds that reduced cascading under GST will enhance the revenue efficiency of the Indian commodity tax structure. The findings are corroborated by the post-GST revenue performance of Indian states and the central government.