Content uploaded by Priyabrata Panda
Author content
All content in this area was uploaded by Priyabrata Panda on Dec 10, 2020
Content may be subject to copyright.
66 Orissa Journal of Commerce, Volume XXXXI, January
-
March
-
2020, Issue No
-
I
Direct Tax Reform in India: An Impact Analysis
with
Special Reference to Government Revenue
Dr. Priyabrata Panda*, Dr. Kishore Kumar Das** & Prof. Malay Kumar Mohanty***
ABSTRACT
The Direct Tax regime has witnessed many changes every year since its inception. The proposed change
or reform in tax policy has manifold objectives. The impact of such reform should be judged in regard to its
contribution to government treasury which is the primary purpose of tax reform. This research work dissects
the impact of direct tax policy reform, direct tax administrative reform and economic policy reform on direct
tax revenue and total revenue. Notable research work in the similar field is reviewed and gap is traced out.
Anova and regression is applied to assess such impact.
Keywords: Direct Tax, Reform, Impact, Policy.
Introduction.
The great Sepoy revolt was considered as force factor for the emergence of tax structure of India. The
Sepoy Mutiny in 1857 broke down the financial strength of British India Government. The military
expenditure increased to 32 crores in 1858-59 from just 17 crores in 1856-57. To overcome this acute
financial crisis, the British Government introduced first Income Tax Act in February, 1860. The Act is
numbered as Act no XXXI of 1860 which was passed by legislative council of India and received the assent
of the Governor General on 24th July 1860. James Wilson introduced this Act who later became (British) India’s
first finance member. The first Income Tax of India came to force. British government experimented with
different reforms to pour their treasury and succeeded to some extent also. British undertook tax reforms to
generate revenue not for economic development but for generation of revenue. Independent India made radical
change in Income Tax structure with the introduction of Income Tax Act 1961. Government then appointed
different committees and made systematic reforms in time intervals to form a comprehensive tax structure.
The Direct Tax Code which is in pipe line shall be the major reform in direct tax regime after 1961.
Many changes have been carried on in Income Tax Act every year since 1961. Hotel Receipt Tax,
Fringe Benefit Tax, Security Transaction Tax, Gift Tax etc. has levied in different period of time to
*
Assistant Professor, School of Commerce, Gangadhar Meher University, Sambalpur, Email: pandapriyabrata@rocketmail.com
Contact No: 797812 3683, 9090569357
** Associate Professor and Head , School of Commerce, Ravenshaw University, Cuttack, Emaill : drkkdasru@gmail.com
Contact No: 9437154470
*** Professor and Registrar (Retd), Ravenshaw University, Cuttack, Email: dr.malaykumarmohanty@gmail.com,
Contact No: 9437002827
Direct Tax Reform in India: An Impact Analysis with Special Reference to Government...
67
widen the tax base. Different schemes like voluntary disclosure scheme, presumption tax scheme,
compulsory deposit schemes etc. has been introduced and also repealed in time and again to increase
the direct tax revenue. Whether such schemes helped government in generation of revenue or created
the burden of cost of administration for the policy makers?
Thus, the impact of such change should be judged in regard to its contribution to government
treasury and balance economic development. Nidesh (2010) highlighted that the tax reform should aim
at broadening the tax base to realise more revenues which in turn foster sustainable growth and fiscal
adjustment.
Problem Statement
The direct tax regime has undergone several changes since inception. Different policies are framed
and withdrawn in trial basis. Many researchers concerned about many weaknesses of India’s tax structure
like tax evasion, narrow tax base low compliance etc. Pillarisetti (1995)
1
opined that Indian direct tax
reform failed to neutralise non-compliance and tax evasion and India’s approximately 50% legal
reportable income is untaxed. Similar opinion is also delivered by Bhalla (2004)
2
. Bernardi and Fraschini
(2005
)
observed that direct taxes still are in an infant state, both as weight as well as structure. Thus, tax
reforms should be quantitatively matched to its objectives.
Importance of the Study
Tax policy must be resulted to pouring of treasury in particular and fostering economic development
in general. Policy makers are eager to know the viability of the policy which has rolled out. This study
focalizes to dissect the quantitative impact of direct tax policy reform and direct tax administration
reform and economic policy reform on direct tax revenue and total revenue. It is the need of the time to
study the impact of such policy.
This research can give an insight view of earlier reforms, and based on which policy makers may
make required changes in fiscal policy. The current study can help government in designing tax structure.
It will also helpful for researchers to conduct extensive studies in this subject.
Review of Literature
Gupta, Lahiri and Mookharjee (1995)
made an empirical analysis on income tax compliance in
India from 1965-55 to 1992-93. They found that low tax rates, plethora of exemptions significantly
affect the revenue collection.
Sharma (1997)
dissected the revenue potential of MAT and AMT by
taking 4352 companies. The author found that that government would collect net additional revenue of
2625 crores of rupees from this measure (MAT) from 3178 zero tax companies.
Gupta & Gang (2000)
proposed a method for evaluating the impact of tax structure changes on tax revenue. They believed
that revenue loss is the sum of tax rate effect, statutory base effect and evasion effect.
Chattopadhyay,
Das-Gupta (2002
), in their article empirically studied the reaction of tax payers in respect to tax
avoidance, compliance, tax planning, tax saving etc. in India. They have concluded that legal compliance
costs effect tax collection positively and tax evasion negatively.
Bhalla (2004)
glossed up the impact of
structure of income tax rates on compliance, and tax revenue. The paper concluded that the tax cuts, tax
reform, reduction in tax rates and removal of exemptions would lead to a significant increase in direct
tax revenues.
Rao (2005)
canvassed the structure and operation of Indian tax system. The author
Direct Tax Reform in India: An Impact Analysis with Special Reference to Government...
68
stunningly concluded that some progressive tax reforms have helped to enhance tax-gdp ratio.
Bernardi
and Fraschini (2005)
theoretically studied about tax system and tax reform in India. The authors
suggested that tax reforms of India should reduce both tax evasion and costs of compliance, and should
eliminate most of the distorted behaviour coming from tax avoidance.
Pandey (2006)
conducted a study
on policy initiative of direct tax reform by taking on both primary and secondary data. The author
advocated about elimination of tax incentives, widening of tax base, strengthening of tax collection
machinery, encouragement of voluntary compliance, reform in tax administration etc.
Tsakumis,
Curatola & Porcano (2007)
opined that the nidus of deficit tax revenue is tax evasion. Further tax
avoidance not only depends upon audit failure or policy failure but also attributable to national
culture.
Singh (2008)
extensively studied how evasion and corruption cause significant loss to
Government tax revenue. The author analysed the nexus between tax payer and tax auditor which results
tax evasion.
Nidesh (2010)
made an insight view on direct tax reforms process from 1970s to New Direct
Tax Code and opined that a major simplification and rationalization initiative came in 1985-86, when
the number of tax brackets was reduced from eight to four, the highest marginal tax rate was brought
down to 50 percent and wealth tax rates came down to 2.5 percent.
Vazquez & Timofeev (2010)
opined that
maximisation of revenue and lowering of administration cost and compliance cost be kept in mind
when tax reforms are carried on.
Palande (2011)
emphasised on the simplification of tax structure which
ultimately accelerate tax compliance, widening of tax base to increase tax revenue, improving of tax
administration to strengthen tax system, minimizing compliance cost as an austerity measure.
Prakash & Sindhu (2011)
made a comparative study of direct tax reforms in India in pre and post
liberalisation period. They have concluded that substantial changes have taken place in the overall tax
structure and its composition in India during the post-reform period.
Lucotte (2012)
made an empirical
study on inflation targeting and tax revenue performance in 59 emerging countries. The paper concludes
that adoption of monetary policy framework by maintaining inflation low levels encourages the
government to improve collection of domestic tax revenue.
Bagchi (2013)
made a theoretical study on
priorities of a tax programme, pointed that the objective of maximising the yield of direct tax raising
tax rate, widening tax base and curve evasion. The focus of a tax reform must suggest the means for
talking problems of black money, tax evasion and tax arrears as well.
Sharma&Singh (2017)
canvassed
income tax responsiveness of India in post liberalisation period from 1991 to 2015. It is derived from
the paper that “The tax elasticity coefficient for the study period (1991-2015) has been 0.53, thus depicting
the low magnitude of automatic responsiveness for income tax collections vis-à-vis variations in
economic growth post the reforms era”
Research Gap
The above research articles stressed on attributes like tax rate, exemption, avoidance, corruption
etc. These authors did splendid work in their sphere of research. Bur little scholarly attention has been
diverted to measure the quantitative impact of direct tax reform on direct tax revenue and total revenue.
Further researchers had not identified a specific reform and its overall impact. No research work
categorised the direct tax reform to policy reform and administrative reform. In addition, the previous
studies are limited to assess the impact of economic policy reform on direct tax revenue and total
revenue. The present research paper tries to measure the impact of direct tax policy reform, direct tax
administrative reform and economic policy reform on direct tax revenue and total revenue.
Direct Tax Reform in India: An Impact Analysis with Special Reference to Government...
69
Objective of the Study
The study is conducted with following objectives.
1.
To measure the impact of economic policy reform on total revenue and direct tax revenue.
2.
To assess the impact of direct tax policy reform on total revenue and direct tax revenue.
3.
To analyse the direct tax administration reform on total revenue and direct tax revenue.
Hypothesis of the Study
The following hypotheses are designed in accordance with the objectives.
1.
HO
1
: There is no significant impact of economic reform on direct tax revenue and total revenue
of government.
2.
HO
2:
Direct tax policy reform has no significant impact on total revenue and direct tax revenue.
3.
HO
3:
Direct tax administration reform has no significant impact on total revenue, and direct tax
revenue.
Research Methodology
This segment covers selection of data and its source, variable, statistical tools etc.
Data Period.
Data from 1960-61 to 2016-17 is processed under this research work. The total period is grouped
on the basis of Economic Policy Reform, Direct Tax Administrative Reform and Direct Tax Policy
Reform which are as follows.
Table 1: Description of Groups.
Category Criteria
Category
Category Name
N
Economic Policy
Reform
1
1961-1978
16
2
1978-1991
11
3
1991-2017
26
Direct Tax
AdministrativeReform
1
1961-1972
12
2
1972-1987
12
3
1987-2007
19
4
2007-2017
10
Direct Tax Policy
Reform
1
1961-1978
15
2
1978-1997
18
3
1997-2017
20
Source: Compiled results.
70 Orissa Journal of Commerce, Volume XXXXI, January-March-2020, Issue No-I
Justification of Grouping.
The Data Points are grouped into three categories according to economic policy reform, direct tax
administrative reform and direct tax policy reform. The first break point in the economic policy reform
is 1978 when for the first-time demonetisation policy was adopted in independent India. Major economic
reform took place in 1991which is the second break point for such group. Prakash & Sindhu (2011)
3
has
also taken 1991 as a break point to study the revenue behaviour in pre and post reform period
Administrative Reforms can be annotated as creation, abolition and redesignation of posts or
directorates, implementation of an administrative policy, scheme or tool like PAN, Assessment, TAXNET,
and TRACES etc. Direct Tax Policy Reform can be explicated as change in tax rate, deduction and
exemption etc.
The study period is segmented to four groups on the basis of administration reforms. The groups
are 1961-1972, 1972-1987, 1987-2007 and 2007 to 2017. The justification of such segmentation is
given in the following tables.
Table 2: Important Administrative Events of 1972 and Its Possible Impact.
Events Possible Impact
Creation of Special Cell To regulate the issues of big industrial
houses.
Creation of a new cadre post known
as IAC
To check tax evasion on transfer of
immovable property.
Directorate of O & M (Income- tax) For better governance.
Creation of post of I.T.O. (Internal
Audit) For maintaining transparency
PAN Introduced. Effective assesses management
More Power for valuation officers
under Income Tax Act and wealth Tax
Act.
Accelerating Search and Seizure.
Source: www.incometaxindia.gov.in.
The reform of 1972 had emphasized on governance, transparency, checking on evasion etc.It is
expected that such events would have fostered the growth of direct tax revenue and total revenue as
well.
70 Orissa Journal of Commerce, Volume XXXXI, January-March-2020, Issue No-I
The table below portrays the important administrative reforms in 1987 and its possible impact.
Concept of uniform previous year, simplification of laws and procedures, developing of comprehensive
dispute settlement mechanism etc are the important events of 1987 which could have helped government
in generation of more tax revenue
Table 3: Important Administrative Events occurred in 1987 and Its Possible Impact.
Events Possible Impact
Introduction of uniform previous year Systematic collection and assessment
Office of Directorate General (Tax
Exemption) Better Governance
Three new benches of Settlement
Commission were set up Easy Dispute Settlement
The Direct Tax Law (Amendment) Act
1987
Introduced
Simplification of procedures and
redesignation of different officers.
Source: www.incometaxindia.gov.in.
Table 4: Important Administrative Events occurred in 2007 and Its Possible Impact.
Events Possible Impact
Sevottam Scheme Standardize service delivery to the taxpayers
AayakarSeva Kendra Centralized receipt and registration of income tax returns
TAXNET Assesses Management
ITDMS Recording 360° taxpayer profile
Source: www.incometaxindia.gov.in.
Many measures like above are undertaken in each year from 1961 to 2017. But important
administrative reform is chosen only after a rigorous theoretical analysis and rational thinking as there
is unavailability of adequate literature in regard to this.
Important direct tax policy events for the concerned years are selected by applying same principle. The
year 1972 was experienced with above administrative changes which impact is studied with the technique
of anova and regression
Direct Tax Reform in India: An Impact Analysis with Special Reference to Government...
72
Assumption Checking.
Normality is one of the important assumptions for metric variable when parametric tests are applied.
The results of normality test of different variables are shown below.
Table 5: Result of Normality Test.
Variables
Kolmogorov-Smirnov
Result
Statistics
N
Sig.
Total Revenue
.096
53
.200
Normal
Direct Tax Revenue
.114
53
.081
Normal
Indirect Tax Revenue
.103
53
.200
Normal
Non Tax Revenue
.124
53
.061
Normal
Personal Tax Revenue
.162
53
.001
Not Normal
Corporate Tax Revenue
.096
53
.200
Normal
Source: Data Processed in SPSS software.
The null hypothesis of normality is data is normal which is accepted for all variables shown above
except Personal Tax Revenue with the application of Kolmogorov-Smirnov test.
The assumption of homogeneity should be satisfied for application of Anova. The result of
homogeneity is shown below.
Table 6: Levene’s Test of Homogeneity
Variables
F
df1 df2
Sig.
Total Revenue .993
7
45 .448
Direct Tax Revenue 1.915
7
45 .089
Source: Data Processed in SPSS software.
The null hypothesis for homogeneity is similar like normality i.e. there is homogeneity among the
groups which is accepted for the two dependent variables shown in above table.
Checking Outliers and Missing Values.
There should not be any outliers which are the extreme values. If the standardised values are within +-3,
it is considered that the data has no outliers. It is also important to check missing values in the data set.
Both of these requirements are fulfilled by the help of SPSS software.
Direct Tax Reform in India: An Impact Analysis with Special Reference to Government...
73
Statistical Tools.
Manova and Multiple Regression are applied to test hypothesis. The result of both the test are
compared.
Data Analysis and Hypothesis Testing
Application of Manova.
Manova is a member of Anova family. Unlike factorial anova, manova considered more than two
dependent variables. The following table shows the result of manova.
Table 7: Result of Manova. (Dependent Variable:TR and DTR)
Source
Variable
Sum of
Squares
df
Mean
Square
F
Sig.
Corrected Model
TR
269.244a
7
38.46
247.55
0
DTR
351.175b
7
50.16
274.44
0
Intercept
TR
4387.673
1
4387.67
28239.3
0
DTR
3027.547
1
3027.54
16562.4
0
Economic Policy
Reform
TR
1.164
2
0.58
3.74
0.03
DTR
2.364
2
1.18
6.46
0
Direct Tax
Administrative
TR
14.799
3
4.93
31.74
0
DTR
21.22
3
7.07
38.69
0
Direct Tax Policy
Reform
TR
3.578
2
1.78
11.51
0
DTR
9.777
2
4.88
26.74
0
Error
TR
6.992
45
0.155
DTR
8.226
45
0.183
Total
TR
6730.56
53
DTR
4938.375
53
Corrected Total
TR
276.236
52
DTR
359.401
52
Source: Compiled results.
a.
R Squared = .975 (Adjusted R Squared = .971)
b.
R Squared = .977 (Adjusted R Squared = .974)
TR: Total Revenue, DTR: Direct Tax Revenue.
The adjusted R square which measures the degree of explanation made by the variables about the
model is well satisfactory for both the variables. The application of manova rejects the entire three
hypotheses. Economic reform has significant impact on Total Revenue and Direct Tax Revenue. Thus,
demonetisation of 1978 and major economic policy reform in 1991 has significant impact on direct tax
revenue. Similarly, direct tax administrative reforms and Direct tax policy reform in the in the concerned
years have significant impact on both Direct Tax Revenue and Total Revenue of government.
Direct Tax Reform in India: An Impact Analysis with Special Reference to Government...
74
Application of Multiple Regression Technique.
Multiple Regression Technique explains how much increase of dependent variable with every one-
unit increase or decrease of independent variable. Six regression models are designed for the application
of regression technique. The assumptions (Chan, 2001)
4
of such technique are strictly followed. The
table below explains certain criteria of regression analysis.
Table 8: Regression Assumptions.
Model
No
R
Square
Adjusted
R
Square
Std.
Error of
the
Estimate
Durbin
Watson
Statistics
Anova
F Stat, (P
Value)
Residual
Statistics
Mean
Standard
Deviation
10.2.1
.944 .941 .42
1.715
384.521(.000)
0
.979
10.2.2
.972 .944 .43
2.059
190.102(.000)
0
.958
10.2.3
.985 .970 .31
1.810
347.267(.000)
0
.957
10.2.4
.946 .943 .42
1.705
269.254(.000)
0
.969
10.2.5
.992 .992 .12
1.556
1964.726(.000)
0
.970
10.2.6
.587 .512 .63
1.827
7.908(.000)
0
.921
Source: Compiled results.
The R square and adjusted R square measures the degree of explanation made by the variables
about the model. It explains the closeness of the data to fit regression line. It shows the percentage of
variation in Y variable which is explained by all X variables together. Both the R square and adjusted R
value is acceptable for all the above models.
Durbin and Watson (1951) for the first time used such statistics to the residuals in least square
regression analysis. They developed null hypothesis that the errors are serially uncorrelated at lag 1. The
value of such result varies from 0 to 4. But a rule of thumb
is that test statistic values in the range of
1.5
to 2.5 are relatively normal.
The anova value represents the linear relationship between variables which is one of the important
pre-conditions of linear regression analysis. The result is drawn in Anova table with F statistics. The
hypothesis for such test is mentioned below.
H
0
= There is no linear relationship between two variables.
Here above the null hypothesis is rejected at 1 % level of significance.
The residual statistics signifies mean and standard deviation of residuals. Normal distribution of
residuals is one of the pre conditions of linear regression analysis. The mean value should be zero and
Direct Tax Reform in India: An Impact Analysis with Special Reference to Government...
75
there should be uniformity in deviation. In the above table, mean of standardised residuals of all models
are zero and standard deviation is nearer to one. It can be deduced that errors are normally distributed.
Exhibit 1: Normality of Residuals through P P Plot.
Model : 10.2.1
Model : 10.2.2
Model : 10.2.3
Model :10.2.4
Model :10.2.5
Model :10.2.6
Source: Data Compiled with the help of SPSS.
Direct Tax Reform in India: An Impact Analysis with Special Reference to Government...
76
The above picture shows the P P Plot which advocates normality of residuals graphically. If the
data points are nearer to the straight line in P-P Plot, the data is said to be normally distributed. The P P
Plot of all the six models are not scattered over the picture rather nearer to the line. Thus, it can be
inferred that errors are normally distributed.
Exhibit 2: Constant Variance of Residuals
Model : 10.2.1
Model : 10.2.2
Model : 10.2.3
Model :10.2.4
Model :10.2.5
Model :10.2.6
Source: Data Compiled with the help of SPSS.
Direct Tax Reform in India: An Impact Analysis with Special Reference to Government...
77
Regression analysis carries one of the important assumptions i.e. there must be constant variance
among residuals. If the plots are scattered all over the area, it is said that there is constant variance of
residuals. The above picture shows constant variance among residuals.
Application of Regression by Taking Direct Tax Revenue as Dependent Variable.
The theoretical regression model may be as follows.
Growth of Direct Tax Revenue
=
+
All variables are measured in log natural form and growths of all variables are taken.
This model took direct tax revenue as dependent variable which is processed with eight independent
variables. The independent variables are described as follows.
CT: Corporate Tax, PT: Personal Tax, WT: Wealth Tax, ODTR: Other Direct Tax Revenue, GNI:
Gross National Income, GDS: Gross domestic saving, GCF: Gross Capital Formation.
Table 9: Regression Coefficients
Model
Unstandardized
Standardized
Coefficients
t
Sig.
Collinearity
B
SE
Tolerance
VIF
10.2.1
(Constant)
0.051
0.091
0.554
0.582
Corporate Tax
Revenue
0.673
0.032
0.745
21.013
0
0.975
1.026
Personal Tax
Revenue
0.208
0.014
0.516
14.554
0
0.975
1.026
Source: Compiled results.
The model considers the significant impact of both Corporate Tax Revenue and Personal Tax
Revenue on Direct Tax Revenue at 1% level of significance as P value is 0.00. The variables like
growth of wealth tax, other direct tax revenue, gross national income, gross domestic product, gross
domestic saving and gross capital formation has no significant impact on the growth of direct tax revenue.
The above table replicates that every one unit increase in direct tax revenue; corporate tax revenue
is increased by .747. Similarly, personal tax revenue is increased by .516. Here the tolerance is nearer to
1 which is more that the desired level i.e., 0.6 and Variance Inflation Factor is also within the limit as
well. The regression equation is as follows.
Direct Tax Revenue = .673*Corporate Tax Revenue + .208 of Personal Tax Revenue.
Application of Regression by Taking Direct Tax Revenue as Dependent Variable with various
Reforms as Dummy Variables.
The theoretical regression model may be as follows.
Direct Tax Reform in India: An Impact Analysis with Special Reference to Government...
78
Direct Tax Revenue
Here above the dummy variables are direct tax administrative reforms, economic reforms and direct
tax policy reforms.
Following are the regression results.
Table 10: Regression Coefficients
Model
Unstandardized
Standardized
Coefficients
t
Sig.
Collinearity
B
SE
Tolerance
VIF
10.2.2
Corporate
Tax
Revenue
0.66
0.033
0.713
19.749
0
0.951
1.051
Personal
Tax
Revenue
0.215
0.015
0.523
14.378
0
0.937
1.067
Direct Tax
Policy
Reform
-2.742
0.363
-0.308
-7.552
0
0.747
1.338
Economic
Policy
Reform
1.113
0.359
0.125
3.097
0.003
0.763
1.31
Source: Compiled results.
a. Dependent Variable: Direct Tax Revenue
Model 10.2.2 reveals the following equation.
Direct Tax Revenue =.660* Corporate Tax Revenue +.215* Personal Tax Revenue -2.742* Direct
Tax Policy Reform +1.113* Economic Policy Reform.
The above model predicts Direct Tax Revenue with four independent variables viz. Corporate Tax
Revenue, Personal Tax Revenue, Policy Reform and Economic Reform. Direct Tax Administrative
Reform has no impact on the growth of Direct Tax Revenue. The direct tax policy reform is predicting
the direct tax revenue negatively. With one unit of increase of growth of Direct Tax Revenue, growth of
Corporate Tax Revenue is increased by .660 times. Similarly, Personal Tax Revenue influences by .215
times and Policy Reform by -2.742 times and Economic Reform by 1.113 times.
Direct Tax Reform in India: An Impact Analysis with Special Reference to Government...
79
Application of Regression by Taking Direct Tax Revenue as Dependent Variable with
Introduction of Various Direct Tax Acts as Dummy Variables.
Direct Tax Revenue
Here above the dummy variables are introduction of Hotel Receipt Tax Act, Interest Tax Act, Fringe
Benefit Tax Act, Security Transaction Tax Act and Banking Cash Transaction Tax Act and Gift Tax Act.
Hotel Receipt Tax Act was introduced w.e.f 01.04.1981, Interest Tax Act 1974 was revived in 1991,
Fringe Benefit Tax Act and Security Transaction Tax Act was come to force in 2004, Banking Cash
Transaction Tax Act was in operation in 2005 and Gift Tax Act was in force from 31.05.1990.
Following are the regression results.
Table 11: Regression Coefficients
Model
Unstandardized
Coefficients
Standardized
Coefficients
t
Sig.
Collinearity
Tolerance
VIF
B
SE
10.2.3
(Constant)
0.221
0.09
2.462
0.018
Corporate
Tax revenue
0.739
0.028
0.756
26.79
0
0.877
1.141
Personal Tax
Revenue
0.201
0.011
0.495
17.928
0
0.917
1.09
Gross Capital
Formation
-0.204
0.053
-0.106
-3.821
0
0.909
1.1
Interest Tax
0.545
0.232
0.063
2.351
0.023
0.975
1.026
Source: Compiled results.
Model reveals following regression equation.
Direct Tax Revenue =.739* Corporate Tax Revenue +.201* Personal Tax Revenue -.204* Gross
Capital Formation+.545* Interest Act.
All the above predictors affecting the predictand at 1% level of significance. In the above model,
Gross Capital Formation negatively affects the dependent variable. Interest Tax Act influences the
dependent variable by .545.
Application of Regression by Taking Direct Tax Revenue as Dependent Variable with MAT,
CDS, VDS, Gift Tax Act and BCCT as Dummy Variables.
80 Orissa Journal of Commerce, Volume XXXXI, January-March-2020, Issue No-I
The theoretical model for the application of regression analysis is as follows.
Direct Tax Revenue
The dummy variables are introduction of Minimum Alternative Act, Compulsory Deposit Scheme,
Voluntary Disclosure Scheme, Gift Tax Act and Banking Cash Transaction Tax Act. Minimum Alternative
Act was introduced in 1997; Compulsory Deposit Scheme Act 1974 was introduced in 1974 and
discontinued in 1982.
Moreover, Voluntary Disclosure Scheme was introduced in 1951, operational in 1965, was applicable
to income and wealth in 1975 and again introduced in 1997; Gift Tax Act was come in force with effect
from 31.05.1990 and abolished in 1998 and Banking Cash Transaction Tax Act was effective from
01.06.2015.
The table below explains the regression coefficients. The variables which significantly affect the
dependent variables are shown in this table. The regression equation is as follows.
Direct Tax Revenue = .673*Corporate Tax Revenue +.208 *Personal Tax Revenue -3.395.MAT.
Table 12: Regression Coefficients.
Model
Unstandardized
Coefficients
Standardized
Coefficients
t
Sig.
Collinearity
Statistics
Tolerance
VIF
B
SE
10.2.4
(Constant) .051 .091 .554 .582
Corporate
Tax
Revenue
.673
.032
.728
21.013
.000
.975
1.026
Personal
Tax
Revenue
.208
.014
.508
14.554
.000
.962
1.040
MAT
-
3.395
.430
-
.272
-
7.899
.000
.986
1.014
Source: Compiled results.
Corporate Tax Revenue and Personal Tax Revenue affect the Direct tax Revenue at 1% level of
significance in the above model. Here above Minimum Alternative Tax negatively affects the Direct
Tax Revenue.
Application of Regression by Taking Total Revenue as Dependent Variable.
The model took Total Revenue as dependent variable and Direct Tax Revenue, Indirect Tax Revenue
80 Orissa Journal of Commerce, Volume XXXXI, January-March-2020, Issue No-I
and Non-Tax Revenue as independent variable. The impact of these dependent variables on Total Revenue
is studied.
The theoretical regression model is as follows.
Total Revenue = +
DTR: Direct Tax Revenue, ITR: Indirect Tax Revenue, NTR: Non-Tax Revenue, E:
Error Following are the regression results.
Table 13: Regression Coefficients
Model
Unstandardized
Coefficients
Standardized
Coefficients
t
Sig.
Collinearity
Statistics
Tolerance
VIF
B
SE
10.2.5
(Constant) .088 .033 2.683 .010
Non Tax
Revenue .278 .005 .765 53.524 .000 .825 1.212
Indirect
Tax
Revenue
.431
.021
.302
20.114
.000
.748
1.337
Direct
Tax
Revenue
.132
.013
.164
10.531
.000
.696
1.437
Source: Compiled results.
The regression equation is as follows. All the variables are significant at 1% level of confidence
along with the constant.
Total Revenue = .088+.278*Non Tax Revenue + .431*Indirect Tax Revenue + .132* Direct Tax
Revenue.
With one unit increase in Total Revenue, Indirect Tax Revenue, Direct Tax Revenue and Non Tax
Revenue is increased by .431, .132 and .278 respectively.
Application of Regression by Taking Total Revenue as Dependent Variable and Different
Reforms as Independent Variable.
This model studied the impact of micro economic factors and direct tax reforms on Total Revenue
of Government. The theoretical model is explained below.
Total Revenue = +
dtr: direct tax revenue, gds: gross domestic savings, gni : gross national income, gcf : gross capital
formation, er: economic reform, dtadt: direct tax administration reform, dtpr:direct tax policy reform.
Direct Tax Reform in India: An Impact Analysis with Special Reference to Government...
82
The above model is specifically designed to study the impact economic reform, administrative
reform and direct tax policy reform on total revenue of the government.
Thus, these variables are taken as dummy variables.
The table below shows the regression coefficient with the significant value. Direct tax revenue
only significantly affects the total revenue. No other variables affect the predictand.
Economic reform, direct tax policy reform and direct tax administrative reform have no impact on
total revenue. Other economic indicators also have no impact on total revenue.
Table 14: Regression Coefficients.
Model
Unstandardized
Coefficients
Standardize
d
Coefficients
t
Sig.
B
Std. Error
Beta
10.2.6
(Constant )
.025
.299
.085
.933
Gross Ca pital
Formation
-.063
.260
-.058
-.241
.810
Gross National Income
.502
.321
.211
1.562
.126
Gross Do mestic
Saving
.199
.287
.158
.693
.492
Economi c Reform
-.208
.561
-.047
-.371
.712
Direct Tax Revenue
.374
.056
.693
6.648
.000
Policy Reform
-.148
.523
-.033
-.282
.779
Administrative Reform
-.364
.412
-.099
-.883
.383
Source: Compiled results.
Major Findings of the Study
Data, in the form of different variables, from 1960-61 to 2016-17 is processed under anova and
regression technique. The major findings are summarised below.
1.
The economic policy reform viz. The first demonetisation of independent India in1978 and the
major economic policy reform in 1991 has significant impact on direct tax revenue and total tax revenue.
Such structured and comprehensive economic policy changes have been fostering the revenue generation
potential of India.
2.
Direct tax administrative reforms in 1987 and 2007 have significant impact on total tax revenue
and total revenue. Reforms like creation of new directorates, introduction of schemes like sevottam
scheme, taxnet etc. influences the revenue when anova is applied but regression results replicate that
Direct Tax Reform in India: An Impact Analysis with Special Reference to Government...
83
these administrative amendments have no impact on direct tax revenue and total revenue. The regression
results can be firmly accepted than anova results.
3.
Direct tax policy reform has significant impact on direct tax revenue when both anova and
regression is applied. Thus, it can be deduced that direct tax policy reform of 1978 and 1997 has
significantly influenced direct tax revenue. But its impact on total revenue is surmised when regression
is applied.
4.
Corporate tax revenue and personal tax revenue has significant impact on direct tax revenue.
The impact of corporate tax revenue on direct tax revenue is three times more than the impact of personal
tax revenue. Gross national income, gross domestic savings and gross capital formation has no impact
on direct tax revenue.
5.
Introduction of interest tax has significant impact on direct tax revenue. FBT, STT, BCTT and
Gift tax has no significant impact on direct tax revenue.
6.
MAT has significant impact on direct tax revenue but CDS, VDS has no impact on the growth of
direct tax revenue.
7.
The impact of indirect tax revenue on total revenue is more than the direct tax revenue and other
direct tax revenue.
Policy Suggestion.
Following are the noteworthy policy suggestions which are based on the above findings
1.
The study shows that administrative reforms of 1972, 1987 and 2007 have no impact on tax
revenue. But such reforms have simplified tax compliance procedure hence should be continued in the
demand of time. Specifically measures like presumption scheme, award to tax payers, digitalisation of
service delivery mechanism, decentralisation of directorates, delegation of more power wherever
necessary etc. should be reshaped, revived and reconsidered.
2.
Demonetisation has no impact on direct tax revenue. But the major economic policy reform
influences direct tax revenue positively. Thus, reforms like liberalisation in legislation, further opening
of economy may be initiated time to time.
3.
Direct tax policy reform in the relevant years are not strong enough to influence that tax revenue.
4.
The revenue generation potential of MAT is lamented in this study. MAT is negatively
influencing direct tax revenue.
5.
Bank cash transaction tax and Security transaction tax have no significant impact on direct tax
revenue because of its marginal contribution to revenue. Such types of taxes are pertinently widening
the tax base also adding implementing cost, cost of administration and collection. If such cost is more
than the revenue such tax may be merged with any other tax like wealth tax.
6.
Compulsory deposit scheme should not be implemented again. Many researchers also criticised
such scheme as it violates the fundamental rights of citizens. This study shows that such scheme has no
impact on direct tax revenue.
7.
Voluntary disclosure scheme is an unfair mean to generate tax revenue. It should not be
implemented any more.
Direct Tax Reform in India: An Impact Analysis with Special Reference to Government...
84
Conclusion
There is no iota of doubt that comprehensive, organised and structured changes can help in achieving
tax reform objectives. Deduction or exemption may slow down the revenue growth for a while but in
long run it can accelerate the revenue growth potential of a country. Though egalitarian utopia cannot
be created overnight but an equitable tax policy can morph the dystopia in long run. Tax revenue is not
the only result of tax policy reform. Both monetary policy and fiscal policy can generate tax revenue
for the country. Thus, policy makers of an economy like India should bring out a composite model of tax
reform. The model tax model should comprise of integrated and connected by administrative reform,
economic reform and tax policy reform.
References
1.
Bagchi, A. (1973). Priorities for a Tax Programme. Economic & Political Weekly, 8(8), 435,437-439,441-443.
2.
Bernardi L and Fraschini A (2005):Tax System and Tax Reforms in India, Working paper n. 51, Department of
Public Policy and Public Choice, University of Pavia and University of Eastern Piedmont , Italy
3.
Bhalla, S. S. (2004): Tax Rates, Tax Compliance and Tax Revenues: India, 1988-2004, Book published by Oxus
Research & Investments, June 2004.
4.
Chan, Y.H.. (2004) Biostatistics 201: Linear Regression Analysis. Singapore Med J; 45 (2), pp 55- 61.
5.
Chattopadhyay, S., & Das-Gupta, A. (2002): The Personal Income Tax in India: Compliance Costs and Compliance
Behaviour of Taxpayers, Project Report, National Institute oƒ Public Finance and Policy, New Delhi.
6.
Gupta, A., Lahiri, R., &Mookherjee, D. (1995). Income Tax Compliance in India: An Empirical Analysis.
Word Development, 23(12), 2051–2064.
7.
Gupta, A., & Gang, I. N. (2000). Decomposing Revenue Effects of Tax Evasion and Tax Structure Changes.
International Tax and Public Finance, 7(2), 177–194. https://doi.org/10.1023/A:1008704520816
8.
Lucotte Y (2012): Adoption of inflation targeting and tax revenue performance in emerging market economies: An
empirical investigation, Economic Systems, 36 (2012) pp 609–628
9.
Nideesh, K. B. (2010). Direct Tax Reform in India/ : A Road Ahead. Advances in Management, 3(1), 5–7.
10.
Rao, M. G. (2005). Tax system reform in India: Achievements and challenges ahead. Journal oƒ Asian
Economics, 16(6), 993–1011. https://doi.org/10.1016/j.asieco.2005.10.003
11.
Palande S. A. (2011): Income Tax Problems & Recommendation, Indian Streams Research Vol. 1, Issue II /
March 2011, pp.168-171
12.
Pandey M. (2006): Direct Tax Reforms in India- Policy Initiatives and Directions, Master Degree Thesis
Submitted to University of Ljubljana.
13.
Pillarisetti, J. R. (1995): Direct Tax Reform in Privatise Economies, A comparative study of India and Latin
American Countries, International Journal oƒ Social Economics, Vol 22 No 8 pp 22-33
14.
Prakash, O. & Sindhu, A. S. (2011): Direct Tax Reforms in India: A Comparative Study of Pre and Post-
liberalization Periods, The IUP Journal oƒ Public Finance, Vol. IX, No. 1.
15.
Singh K J (2008): On Tax Evaders and Corrupt Auditors, The Journal oƒ International Trade & Economic
Development: An International and Comparative Review, 17:1, 37-67
16.
Sharma, K. C. (1997). Corporate Tax Policy/ : Issues and Options Corporate Tax Policy/ : Issues and Options.
Economic and Political Weekly, 32(8), pp.417–421.
Direct Tax Reform in India: An Impact Analysis with Special Reference to Government...
85
17.
Sharma A & Singh J (2017). Estimating the Income Tax Responsiveness in India: A Post Liberalization Era
Analysis, International Journal oƒ Applied Business and Economic Research, Vol 15, No 9, pp 315-323.
18.
Tsakumis G T, Cutatola A P &Porcano T M (2007): The Relation between National Cultural Dimensions and Tax
evasion, Journal oƒ International Accounting, Auditing and Taxation, 16 (2007) pp 131–147
19.
Vazquez J M & Timofeev A (2010): Choosing between Centralized and Decentralized Models of Tax
Administration, International Journal oƒ Public Administration, 33:12-13, pp.601-619.
(Footnotes)
1.
The author also annotated that prevalence of extreme high rate of tax over several years resulted in institutionalised
corruption and tax evasion in India in 1980s and 1990s.
2.
The author related in his book
Tax rates, Tax compliance and Tax revenues: India, 1988-2004”,
among consumption, distribution, per capita income, number of tax payers, number of returns filled and tax revenues
from the year 1988 to 2004. The author also studied the elasticity of compliance and revenue and found that there is
low level of compliance of Income Tax in India.
3.
Prakash, O. & Sindhu, A. S. (2011): Direct Tax Reforms in India: A Comparative Study of Pre and Post- liberalization
Periods
4. Chan, Y. H. (2004). Biostatistics 201/:, 45(2), pp.55–61.
