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A Comparative Analysis Of India And China's GST Regime

"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 countries (VAT).

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.
Tax items 
VAT rate
Most goods and some services
  • Sales and imports of most goods (unless otherwise specified)
  • Labour services, including processing, repair, or assembling services
  • Tangible moveable property leasing services
Real estate, transportation, postal and agriculture
  • 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 residential use
  • Books, newspapers, magazines, audio-visual products, electronic publications
  • 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
Small-scale taxpayers 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)
Exports Export of goods and services (except where otherwise stipulated by the State Council) 0% 

B. In India
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 occasionally used.

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% each.

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%.
Taxable Items Rate
  • Milk
  • Eggs
  • Curd
  • Lassi
  • Kajal
  • Educations Services
  • Health Services
  • Children's Drawing & Coloring Books
  • Unpacked Foodgrains
  • Unpacked Paneer
  • Gur
  • Unbranded Natural Honey
  • Fresh Vegetables
  • Salt
  • Unbranded Atta
  • Unbranded Maida
  • Besan
  • Prasad
  • Palmyra Jaggery
  • Phool Bhari Jhadoo
Packed Paneer
Edible Oils
Domestic LPG
Roasted Coffee Beans
PDS Kerosene
Skimmed Milk Powder
Cashew Nuts
Footwear (< Rs.500)
Milk Food for Babies
Apparels (< Rs.1000)
Coir Mats, Matting & Floor Covering
Mishti/Mithai (Indian Sweets)
Life-saving drugs
Coffee (except instant)
Processed food
Fruit Juice
Preparations of Vegetables, Nuts Fruits, or other parts
Packed Coconut Water
Hair Oil
Capital goods
Industrial Intermediaries
Corn Flakes
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)

Comparative Analysis
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 reasons:
  • 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 enforcement.
  • 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 efficiency.
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 exist.

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 disparity.

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.

Comparative Analysis
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 the nation.

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 its residents.

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 tracker.

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 details.
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 purchases.

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 amount.
  • 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 amount.
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.

Comparative Analysis
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 authorities.

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 India.

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 $21,058,372,476.66

Comparative Analysis
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:
    1. 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 Mission")
    2. 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 Emerging Economies")
    3. 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")
    4. 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")
    5. 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 dangerous loop.

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.

Overall, I 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 growth.

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.


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