"You don't pay taxes they take taxes."-- Chris Rock
The goods and services tax (GST), an indirect federal sales tax, is charged on
the price of various goods and services. After the business has added the GST to
the product's cost, the buyer pays the sales price inclusive of the GST when
they buy a product. The business or seller is in charge of gathering and sending
the GST portion to the government. It is also known as value-added tax in some
The GST was initially implemented in 1954 in France; since then, it has
reportedly been embraced in various forms by 140 nations. Canada, Singapore, the
United Kingdom, Spain, Brazil, China, and India are a few nations that have a
GST. For the purpose of this paper, I am focusing on China.
GST, which replaces VAT in India, is used on the provision of goods and
services. A modernised version of VAT, known as GST, also makes it possible to
trace the goods and services. The tax rates for VAT and GST are same. This tax
is comprehensive, multi-stage, and location-based. It is comprehensive because,
with the exception of a few state levies, it has absorbed almost all indirect
taxes. The GST is charged at each stage of manufacturing since it is
multi-staged. It is nevertheless collected at the point of consumption rather
than the site of origin since it is a destination-based tax as opposed to an
origin-based tax like prior ones.
Value-added tax (VAT) is also known as the "Goods and Services Tax" in China (GST).
The value added to products and services at each level of production and
distribution is subject to the GST, a consumption tax. Usually, it is calculated
as a percentage of the cost of the goods or services. Businesses normally
collect GST and then pay it on to the government. In China, a wide range of
products and services are subject to the GST, and the applicable rate varies
according to the kind of commodity or service.
The origins of the GST in China may be traced to the 1980s, when the country's
government replaced its prior system of company taxes with a VAT system. The
manufacturing and construction industries were the primary focus of the VAT
system, which was eventually expanded to cover the services industry in 1994.
GST is increasingly becoming a popular taxation system in the world, because it
because it is simple, efficient, neutral, inclusive, flexible, and an efficient
way for governments to raise revenue. Also, since China is India's neighbor, It
is of relevance to compare our GST system to theirs. China has been rapidly
growing in recent years and has been making significant strides in becoming a
world leader. In the coming decades, both countries will be global leaders.
Thus, I feel that it is relevant to take a look at their GST system and compare
it to ours. The reasons for comparing tax regimes may be beneficial in a number
of ways, including: assessing the effectiveness and fairness of a tax system,
locating ideal situations and areas for development, recognising how taxes
affect certain communities, assisting with changes and informed policy decisions
and finally inspiring accountability and transparency in tax administration. To
this end, I have chosen multiple metrics for comparison as you will soon see.
The Slab Rates Prevailing In Both Systems (Tax Base)
A. In China
There are now four separate VAT rates in China: 13%, 9%, 6%, and 0%. Unless
otherwise indicated by tax authorities, the sale and import of the majority of
goods, the provision of repair, replacement, and processing services, and the
leasing of tangible movable assets are all subject to the standard VAT rate of
13%. The following products are eligible for lower VAT rates.
B. In India
|Most goods and some services
- Sales and imports of most goods (unless otherwise specified)
- Labour services, including processing, repair, or assembling
- Tangible moveable property leasing services
|Real estate, transportation, postal and
- Agricultural, forestry, animal husbandry products: grains,
vegetable oils, fresh milk, medicinal and other plants, agricultural
machinery, fertilizer, and pesticide.
- Tap water, heating, cooling, gas, coal/charcoal products for
- Books, newspapers, magazines, audio-visual products, electronic
- Transportation services
- Postal services
- Basic telecommunications services
- Real estate, construction, transfer of ownership of properties
and land use rights, real estate leasing service
- Other goods specified by the state council
- Financial and insurance services
- Modern services: research and development, technical services,
information technology services, cultural and creative services,
logistics and ancillary services, leasing, consulting, radio, film
and television services, etc.
- Lifestyle services: education, healthcare, travel,
entertainment, catering, accommodation, cultural and sports
services, other daily lifestyle services
- Value-added telecommunications services
- Intangible assets, excluding land-use rights
- Sales of virtual props for online games
||For most goods and services, a uniform rate
of 3% applies to small-scale VAT taxpayers
||3% (except certain actual
transactions applicable to 5% VAT rate)
||Export of goods and services (except where
otherwise stipulated by the State Council)
The GST Council determines the GST Rate Slabs. The GST Council routinely reviews
the rate slabs for goods and services. GST rates are often high for luxuries and
low for necessities. The GST rates in India are divided into four groups: 5% GST,
12% GST, 18% GST, and 28% GST. A few GST rates, such 3% and 0.25 percent, are
In addition, the individuals that make up the taxable composition are required
to pay general service tax at lower or nominal rates like 1.5%, 5%, or 6% on
their income. Additional GST concepts include TDS and TCS, at rates of 2% and 1%
These are the overall IGST rates or the sum of the CGST and SGST for intrastate
supplies. To calculate the GST amounts on a tax invoice, multiply the GST rates
by the supply's assessable value.
In addition to the previously mentioned GST rates, the GST law imposes a cess on
the sale of a variety of goods, such as cigarettes, tobacco, aerated water,
gasoline, and motor vehicles, with rates ranging from 1% to 204%.
- Educations Services
- Health Services
- Children's Drawing & Coloring Books
- Unpacked Foodgrains
- Unpacked Paneer
- Unbranded Natural Honey
- Fresh Vegetables
- Unbranded Atta
- Unbranded Maida
- Palmyra Jaggery
- Phool Bhari Jhadoo
Roasted Coffee Beans
Skimmed Milk Powder
Footwear (< Rs.500)
Milk Food for Babies
Apparels (< Rs.1000)
Coir Mats, Matting & Floor Covering
Mishti/Mithai (Indian Sweets)
Coffee (except instant)
Preparations of Vegetables, Nuts Fruits, or other parts
Packed Coconut Water
|Small cars (+1% or 3% cess)
High-end motorcycles (+15% cess)
Consumer durables such as AC and fridge
Beedis are NOT included here
Luxury & sin items like BMWs, cigarettes
and aerated drinks (+15% cess)
The value of the goods and services that a government levies taxes on is known
as the tax base. The tax base is used to determine how much money both firms and
people owe in taxes. The tax base may be confined to certain commodities or
industries, or it may be characterized in a variety of ways to encompass all
goods and services.
The value of products and services at each step of production or distribution,
excluding taxes previously paid, is often the tax base for a value-added tax
(VAT) or goods and services tax (GST). The tax base, or difference between the
value added at each stage, is used to compute the tax. While a narrower tax
basis may result in higher tax rates and more compliance requirements, a larger
tax base often produces a more stable and effective tax system.
According to me, A strong tax base is viewed as desirable for a number of
- The ability to provide a consistent and adequate income stream for the
government, which can be utilised to finance public services and infrastructure,
depends on the size of the tax base.
- By dispersing the tax burden across a wider range of goods and services,
a broad tax base lessens the impact on any one industry or group and
improves the fairness of the tax system.
- A wide tax base decreases chances for tax evasion and boosts compliance,
which can lower the costs of administration and enforcement related to tax
- By decreasing the need for exemptions, deductions, and other special
regulations, a large tax base may simplify the tax code, making it simpler
to comprehend and adhere to.
- The distortionary impact of taxes on economic activity can be reduced by a
broad tax base that charges consumption rather than production, which can boost
economic efficiency and growth.
- In general, a well-designed tax system is thought to be desirable
because it enhances revenue, justice, efficiency, simplicity, and economic
Thus, prima facie, we can see, upon comparing the tax bases of both the
countries, we can see that India comes out on top. One of the most complete
indirect tax systems in the world is India's Goods and Services Tax (GST), which
has a wide tax base and covers the majority of goods and services.
As can be
seen, The GST's broad tax base provides the benefit that it reduces the impact
on any one industry or group and spreads the tax burden across a wider range of
products and services, improving the fairness of the tax system. Additionally,
Due to its complexity, The GST has improved the government's revenue stream,
which can be used to pay for public services and infrastructure, by taxing a
variety of commodities and services. Thus, In the aspect of tax base, India is
better compared to China.
The Government Tax Authority Structure
A. In China
China is a unitary one-party socialist republic, meaning that it is ruled as a
single body with total authority over all areas of national life, including
taxation and economic policy. The Communist Party of China (CPC), which leads
China's central government, is in charge of enacting and upholding laws that
apply to the whole nation. In federal nations, when the central government and
various states or provinces share authority, this form of governance does not
In China, the central government has the authority to enact and execute laws
that apply to the entire nation, including taxation and economic regulations.
The State Administration of Taxation (SAT), which is in charge of overseeing
China's VAT system, is one of several government departments and entities
through which the Chinese central government exercises its authority. The SAT
collaborates closely with other government organisations to ensure that the VAT
system is successfully implemented and enforced in China. The SAT is in charge
of collecting VAT from businesses and enforcing VAT laws.
B. In India
India is a federal nation, which implies that the central government and many
states share authority. The central government and the state governments both
have the authority to enact and enforce laws for their respective regions under
the federal structure of India. The Goods and Services Tax (GST) system in
India, where the national government and state governments both have a role in
regulating and enforcing GST rules and regulations, reflects this power
The Central Board of Indirect Taxes and Customs (CBIC) and the state GST
ministries are responsible for overseeing the GST system in India. The State GST
(SGST) component of the GST system is administered by the state GST departments,
while the Central GST (CGST) component is managed by the CBIC. The CGST and SGST
parts of the GST system are intended to guarantee that the tax burden is
allocated equally between the federal government and state governments and that
the tax base is widened, which contributes to the effectiveness with which the
GST system is administered and implemented in India.
Let's compare the two government structures.
The separation of authority between the federal government and the several
states under a federal system enables a more sophisticated and adaptable
approach to the management and enforcement of the GST system. The federal system
permits separate states to have distinct laws and regulations, which might
assist in addressing the special requirements and difficulties of various
geographical areas. Additionally, as both the federal government and the state
governments are involved in administering and enforcing the GST system, the dual
administrative structure of the GST system under a federal system enables
greater implementation and enforcement of GST rules and regulations.
Meanwhile, The central government has total authority over the administration
and enforcement of the GST system under a unitary one-party socialist republic
system, which can aid in ensuring that the tax policies and regulations are
uniform and predictable across the whole nation. This might contribute to the
creation of a more secure and predictable business climate, which could be
advantageous for the expansion and growth of the economy. A unitary system's
central government also has the authority to enact and enforce laws that apply
to the entire nation, including tax laws and economic policies, which may help
to guarantee that the GST system is properly established and applied throughout
My personal perspective is going to be pro-democratic federalism. I support
Indian democracy because it provides equal representation and protection of
individual rights, allowing for a just and fair society.
In a democratic system, the people elect the government, which is then
responsible to them. Due to the government's propensity to enact laws and
regulations that are broadly supported by the populace, this system of
accountability can aid in ensuring that the tax system is just and
equal.Furthermore, since the government is compelled to offer frequent updates
and reports on its tax policy and revenue collection, a democratic system
permits a more open and transparent tax system. By fostering confidence between
the public and the government, this transparency can promote tax compliance and
deter tax evasion.
Additionally, in a democratic system, residents have the opportunity to engage
in politics and have their views heard, and the government is more likely to be
sensitive to the concerns of the populace. As a result, the public may voice
their opinions on the tax system, and the government is more likely to pay
attention and act if necessary. Having a fair and equitable tax system that
meets the demands of the entire population may be ensured with the aid of this.
Finally, democracy has several advantages in terms of taxation, including
justice and equity, openness, accountability, and responsiveness. By ensuring
that the tax system is functional, efficient, and meets people's demands, these
advantages can eventually improve both the general well-being of the nation and
Ways To Deal With Tax Evasion
A. In China
China has a special concept known as the fāpi�o. Although the English
translation of an fāpi�o is "invoice," it's a little more nuanced than that.
Online sources claim that a fapiao is an official receipt for products or
services bought inside China that is presented by the vendor but issued by the
Chinese Tax Bureau. These invoices are used by the Chinese government to monitor
tax payments and prevent tax fraud.
So a fapiao is essentially a combined goods and services receipt and tax payment
The fapiao comes in two varieties:
- General fapiao: only payment receipts
- Special fapiao: These are used for tax deductions and contain precise details,
such as the trader's tax code, address, contact information, and bank account
In China, a "fapiao" is a tax invoice that serves as proof of purchase and is
required for businesses to claim input tax credit for the VAT paid on their
There are two types of fapiao:
- General fapiao:
This type of fapiao is used for most commercial transactions,
including the sale of goods and services. General fapiao can be issued by
businesses that are registered taxpayers and have a VAT invoice system. They are
required to be printed and issued by computerized systems approved by the tax
authorities. The general fapiao must contain certain details, including the name
of the taxpayer, the taxpayer identification number, the date of issue, the name
and quantity of the goods or services purchased, the unit price, and the VAT
- Special fapiao:
This type of fapiao is used for specific transactions, such as
the sale of real estate, intangible assets, and second-hand goods. Special
fapiao can only be issued by the tax authorities and are not issued by
businesses themselves. The special fapiao contains details such as the name of
the buyer and seller, the nature and amount of the transaction, and the tax
In summary, general fapiao is used for most commercial transactions, while
special fapiao is used for specific transactions and is issued by the tax
authorities. Both types of fapiao serve as proof of purchase and are essential
for businesses to claim input tax credit for the VAT paid on their purchases.
Since fapiao are considered to be official business documents, you must get one
each time you need to support a transaction or submit an expense report. A major
offence for a firm is failing to produce and issue them when requested.
Every commercial transaction must be documented on a fapiao, which is why it is
unlawful for a corporation to refuse to provide one when asked by a client.
B. In India
India, on the other hand has the concept of GST invoice. A list of the products
supplied or services rendered, along with the payment amount due, is contained
in an invoice or GST bill. The Goods and Services Tax (GST) invoicing system in
India is designed to offer a digital record of transactions and guarantee
adherence to tax regulations.
India's GST system is a thorough indirect tax
system that applies to a variety of commodities and services. The uniform style
for invoices provided by the GST invoicing system makes it easier for tax
authorities to identify and track all transactions. This enhances the overall
effectiveness and openness of the tax system and helps to combat tax evasion.
The operation of the tax system depends on the GST invoicing system, which is a
crucial part of the GST system in India.
On first glance, it may seem that both the concepts are similar. After all, both
systems provide a digital trail of transactions, making it easier for tax
authorities to track and monitor economic activity, are designed to ensure
compliance with tax laws and prevent tax evasion, systems are digital, making it
easier for tax authorities to detect and penalize any instances of tax evasion,
provide a standardized format for invoices, making it easier for businesses to
comply with tax regulations.
But If we dive in further, we see a crucial difference. Fapiao invoices are
issued by the government and are considered legal proof of a transaction, while
GST invoices are issued by businesses and are subject to verification by tax
In my personal opinion, Because they are issued by a reputable and authoritative
authority, such as a government agency, invoices and documents that are issued
by the government are considered to be stronger. Compared to those issued by
private businesses, these invoices and papers have a greater level of
credibility and are frequently seen as more reliable. In order to assure their
legitimacy, these documents are often reviewed and validated in addition to
being issued under stringent laws and regulations.
These aspects lead to the
perception that official government issued invoices and papers are more
reliable. Additionally, This is one of the reasons why the use of Fapiao
invoices is widespread in China, while the use of GST invoices is limited in
Revenue Generation For Both The Countries
For the year 2021, China collected 6351.9 billion RMB in VAT revenue, or
$102,425,307,900.32. In the same time, The total GST collection in India 2021-22
or annual GST collection in India for FY 2021-22 was Rs. 14,76,000 crore, or
China may be bringing in more money through the Goods and Services Tax (VAT)
than India for a number of reasons.
These are a few of the variables that could
be responsible for this difference:
- Greater economic size:
Compared to India, China has a larger economy, one that
is also more active and home to more companies. Due to a larger tax base, the
VAT system would be able to collect more money as a consequence.
- Increased tax compliance:
China may have a greater rate of tax compliance than India, which would lead
to a rise in VAT collection. In order to increase tax
compliance, the Chinese government has put in place a number of initiatives,
including data analysis, technology-based solutions, and enhanced enforcement.
This is due to:
- Data Analysis:
According to a report by the International Monetary Fund (IMF),
the Chinese government has made significant investments in data analytics to
enhance tax compliance. The report states that the Chinese government uses big
data to analyze taxpayer behavior and identify potential non-compliance.
(Source: IMF, "China: Staff Concluding Statement of the 2018 Article IV
- Technology-based solutions:
The Chinese government has implemented a number
of technology-based solutions to improve tax compliance. These include
electronic invoicing, real-time data collection, and online payment systems.
According to a report by the Organization for Economic Co-operation and
Development (OECD), the use of technology in tax administration has helped to
reduce errors and improve the accuracy of tax reporting. (Source: OECD, "Tax
Administration 2019: Comparative Information on OECD and Other Advanced and
- Enhanced enforcement:
The Chinese government has a strong enforcement
mechanism to ensure compliance with the GST system. According to a report by the
Asia Development Bank (ADB), the Chinese government has implemented penalties
for late or incorrect filings, audits, and investigations into suspected fraud.
The ADB report also notes that the Chinese government uses technology to monitor
and identify non-compliant taxpayers, making it easier to take enforcement
action. (Source: ADB, "Tax Administration Reforms in Asia and the Pacific:
Achievements and Challenges")
- Simplified tax procedures:
The Chinese government has simplified tax procedures to make it easier for
taxpayers to comply with the GST system. According to a report by the World
Bank, the Chinese government has introduced pre-filled tax returns, which
reduces the administrative burden on businesses and minimizes errors. The
report also notes that the Chinese government has reduced the number of tax
forms and streamlined tax procedures. (Source: World Bank, "Doing Business
2020: Comparing Business Regulation in 190 Economies")
- Public education:
The Chinese government has undertaken public education
campaigns to improve taxpayer understanding of the GST system. According to a
report by the Chinese Academy of Fiscal Sciences, the Chinese government has
launched a series of education and training programs for taxpayers, including
seminars and online courses. The report notes that these programs aim to improve
taxpayer awareness of their tax compliance obligations and benefits. (Source:
Chinese Academy of Fiscal Sciences, "Taxation and Public Finance in China:
Reform and Challenges")
- More effective tax administration:
When compared to the Indian GST system, the
Chinese tax administration may be more effective in collecting VAT money. This
may be the result of a number of things, such as improved technology, enhanced
data analytic skills, and improved tax collecting procedures.
The technology used by China to administer GST is called the Golden Tax System (GTS).
It is an integrated tax administration system that was launched in 1992 and is
used by the State Administration of Taxation (SAT) in China to manage various
tax functions, including the collection, assessment, and enforcement of taxes.
The GTS is a comprehensive system that includes various modules, such as
taxpayer registration, tax declaration, tax payment, tax refund, and tax audit.
It is designed to improve the efficiency of tax administration, reduce the
compliance burden on taxpayers, and prevent tax evasion and fraud. The GTS is
also used to facilitate electronic invoicing and real-time reporting of
financial transactions, which helps to improve transparency and accountability
in the tax system.
The effectiveness of the GST system depends on revenue collection since it
ensures that the government has the funds to deliver public goods and services,
as well as to invest in infrastructure and other development projects. For
instance, the GST system's money may be used to assist the construction of
roads, bridges, airports, as well as social welfare programmes, educational
initiatives, and health care services.
A effective GST system may also encourage economic growth by lowering business
taxes, increasing investment, and fostering commerce. A well-designed GST system
may also contribute to increased tax compliance and less corruption, both of
which can enhance the general business climate and spur economic growth.
Thus, taking into account the above facts and opinions, we can say that China
has a far better revenue generation through their VAT system. Despite India
havng recently become the country with the largest population, it has had no
effect on the overall tax collection. This in turn means that the government has
less money to spend back on its citizens, and this creates an economically
The goal for this research paper was to compare India's GST system with China's
VAT system and to that end I have compared many metrics: slab rate, in which
India is better, the government tax authority structure, , in which India is
better, ways to deal with tax evasion, in which China is better and finally.
revenue generation for both the countries, in which China is better.
can say that China has a better GST (VAT) system. By encouraging
entrepreneurship, innovation, and investment, China's VAT system has improved
economic growth. Additionally, it has assisted in boosting consumer spending and
lowering company expenses, all of which have aided the nation's overall economic
Thus, in my opinion, India should learn from China, and should adopt some of
it's policies in order to ensure good economic growth rates for the future.