A

Dissertation
On

A COMPARATIVE STUDY OF TAX STRUCTURE OF

INDIA WITH RESPECT TO CHINA
Submitted as partial fulfillment for the award of the degree of

MBA (Financial Management)

Submitted by

MANALI RANA
(18415MFM021)

Under the supervision of

Dr. LAL BABOO JAISWAL

Assistant Professor, Faculty of Commerce,
Banaras Hindu University

Faculty of Commerce
Banaras Hindu University
Varanasi - 221005

September, 2020

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 ACKNOWLEDGEMENT

This successful dissertation has been made possible through the direct
co-operation and guidance of various people for whom I wish to express
my appreciation and gratitude.

First of all I would like to express my sincere gratitude to our

department that has given me an opportunity.
I extend my heartiest thanks to Prof. Om Prakash Rai (Dean &
Professor of FOC, BHU, Varanasi) to take up a dissertation in Faculty of
Commerce on “A COMPARATIVE STUDY OF TAX STRUCTURE
OF INDIA WITH RESPECT TO CHINA”.
My sincere gratitude goes to Dr. Lal Baboo Jaiswal (Assistant
Professor, FOC, BHU, Varanasi) for giving her kind consent to act as
my thesis supervisor. I am also very grateful to her for being able to
give me some of her valuable time and able guidance.

Last but not the least I offer my sincere thanks to my parents, siblings
and friends for their encouragement.

THANKING YOU

MANALI RANA

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 Abstract

The economic progress of a country directly depends upon the taxation

system of the country.
India and China are two biggest economies in the Asian region and both
the nations have always been compared time and again on GDP, taxes,
startups, ease of doing business etc.
On the other side, the implementation of GST in India shows altered
impact on Indian economy.
In this thesis, an effort has been made to thoroughly understand the
taxation structure of India by a comparative analysis along China. The
factors like Total Tax Rates, GDP Ratio, No of Tax
Payments, Time to Comply Taxes and Ease of doing Business are
calculated for comparing the tax structures of India with China.

INTRODUCTION

“It was only for the good of his subjects that he collected taxes from
them, just as the Sun draws moisture from the Earth to give it back a
thousand fold” – Kalidas

The word "Tax" Originates from "Taxation" which means an estimate.

In the words of Dalton, tax is defined as “a compulsory contribution
imposed by a public authority irrespective of the exact amount of service
rendered to the taxpayer in return and not imposed as a penalty for any
legal offence. For the taxpayer the meaning of tax is different from its
legal interpretation or a financial burden as it contains outflow of cash
but for the government, it is an important mechanism of raising revenues
in which an element of sacrifice involves without deliberating any direct
benefit or return to taxpayers.
Tax policies play an important role in countries growth and
development. For collecting the taxes from the public, taxation structure
is made in which laws and rules are formulated by specific individual
nations. In the taxation system, Complex system limits the growth of the

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country and is responsible for hindering the ease of doing business. On
the other side, simplified tax system has occasioned in simplifying the
comfort of carrying ventures along with development and growth of that
specific nation.
India is one of the most rapidly emerging economies in the world. The
One Hundred and First Amendment of the Constitution of India,
officially known as The Constitution (One Hundred and First
Amendment) Act, 2016, presented a national Goods and Services Tax in
India from 1 April 2017. It is a simplified and well-structured taxation
scheme, where an influential segregation has been done among the state
governments’, the central government, and the local bodies.
In this paper, we compare Indian tax system with China to analyze the
strengths and weaknesses.

Tax Structure

India
Tax structure in India is a three tier federal structure. The central
government, state governments, and local municipal bodies make up this
structure. Article 256 of the constitution states that “No tax shall be
levied or collected except by the authority of law”.
The Tax structure in India consists of 3 federal parts:
● Central Government
● State Governments
● Local Municipal bodies
According to Article 256 of the Indian Constitution: “No tax shall be
levied or collected except by the authority of law”
Taxes are determined by the Central and State Governments along with
local authorities like municipal corporations. The government cannot
impose any tax unless it is passed as a law.

China
China being a communist country following the principles of socialism
depends largely on the taxes for its revenue sources.

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Tax is the important element of the macro-economic policy of china and
has a high impact on socio-economic conditions in China. From the
reforms in 1994, China has a well structured taxation system. There are
currently 26 Types of taxes in china which according to their nature can
be divided into the following 8 categories: Turnover Taxes,
Income Taxes, Resource Taxes, Taxes for Special Purpose, Property
taxes, Behavioral Taxes, Agricultural taxes and Custom duties.

Need of the study

The present Indian tax structure is very complex which has affected
industrial growth rate of country. This study is an attempt to know the
strength and weaknesses of Indian tax structure in comparison with its
neighboring and developing country China. The scope of the study is
looking into the following aspects to understand the loopholes in Indian
tax system. Indian tax structure compared with other BRICS countries
with the parameters of tax revenue - GDP ratio, number of tax payments,
time taken in tax compliances, profit tax and total tax rate is paid by
businesses. The findings of the study will recommend further need of
reforms in present Indian tax structure.

Objectives

The very objective of this study is to compare the tax structure and tax
policies prevailing in the China and to assess the present status in the
context of India.
The following are the sub objectives.
(i) To understand tax Structure in comparison with tax structure
of China.
(ii) To compare tax structure with China on the basis of key
indicators like Tax Revenue-GDP ratio, number of Tax
Payments, Time to prepare for tax statements and reporting,
profit tax, other taxes and Total Tax Rate in percentage terms
etc.

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 Research Methodology

This is a descriptive research study based on secondary data obtained

through authenticated secondary sources. The current study is based on
secondary data collected from various journals, newspapers, published
articles and website of World Bank.
Since the overall economic conditions and environment features of both
the counties India and China are almost similar and therefore their tax
structure is comparable. In the present study an attempt has been made
to compare both countries on the basis of some selected parameters as
indicated by the World Bank. For undertaking the analysis, comparative
tables have been formed for both countries and based on the availability
of data diagrams are drawn to help to understand the performance of
BRICS countries easily with respect to the key parameters of World
Bank.

Taxing System in India (Before Implementation of GST)

In India, proportional and progressive tax systems are followed.

According to income tax act of India slab wise tax is imposed on
incomes and proportional tax is applicable on other taxes, like customs
duty, excise duty, VAT, service tax, wealth tax etc.
In India two types of taxes are imposed under.
(i) Direct tax (Income tax, wealth tax)
(ii) Indirect tax

Income tax: According to Indian income tax act both proportional tax
(flat rate) and progressive tax (slab rate) applies. Income tax is
calculated on total income. Proportional tax applicable on the income of
companies and progressive tax is applicable on the income of
individuals.

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Wealth tax: Wealth tax is imposed at one percent on the net wealth of
individual, Hindu undivided family (HUF) and for company if its net
wealth is more than INR.3 million as on the date of valuation. Net
wealth is defined as the difference between value of assets and
liabilities.

Excise duty: Excise duty is that tax which is charged on production or

manufacturing of goods which are chargeable under excise duty.

Customs duty: Customs duty is that indirect tax which is imposed on

goods imported or exported from India at the rates specified in Customs
tariff act.

Service tax: Service tax is that tax which is charged on services. Service
tax is a consumption based destination tax.

Sales tax: Sales Tax is that tax which is charged on selling price of the
goods and not on value addition. Cascading effect is the main problem
of sales tax.

Value added tax (VAT): VAT is that type of indirect tax which is
charged on sale of goods within the state. VAT is the replacement of
sales tax. Under this tax system tax is imposed on the value added at
every level of production or distribution of goods. It is a multi stage tax
system which was introduced to avoid cascading effect of sales tax.

Goods and services tax (GST): GST that has been implemented recently
is supposed to be the major indirect tax reform in the Indian tax structure
system.

GST was implemented in India on 1 July 2017. It is a single tax imposed

on the supply of both goods and services. GST is a destination based tax.
Indirect Taxes such as Excise duty, Service Tax, Value added Tax,
Octopi and Entry Tax etc have been subsumed in GST. The process of
introducing GST is the significant tax reform in India after
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independence. GST is an indirect tax imposed on manufacturing, sales
and consumption of goods and services. GST has replaced all indirect
taxes imposed on goods and services by centre and states. Petroleum
products and alcohol are out of purview of GST. Components of GST:
The components of GST are as follows:
SGST – State Goods and services.
CGST – Central Goods and services Tax.
IGST – Integrated Goods and Services Tax.
UTGST – Union territory Goods and Services Tax

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 Data Analysis and Interpretations:-

Tax to GDP Ratio:-

Tax revenue is the amount imposed by the central government on
taxpayers of the country for the purpose of social and economic welfare
of public. Some of the compulsory transfers like penalties, fines, and
social security contributions are not included in tax revenue collections.
Refunds of tax and rectifications of erroneously collected tax revenue
are known as negative revenue.

Tax revenue - GDP ratio is computed by dividing the tax revenue raised
by the central Government from the GDP of that nation. It is the method
used to evaluate a country's development. Higher GDP of a country is an
indicator of higher tax revenue collection.

From Table 1, it is clear that India’s tax GDP ratio is also far behind
China. The reasons behind the low tax revenue to GDP ratio in India are
evasion of tax, exemptions and relaxations provided on various types of
incomes and low per capita income of country. It is observed that the tax
revenue -to-GDP ratio is lowest in India. Therefore it can be said that it
becomes difficult to meet required social and economic development
needs of a country due to budgetary constraints.

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 Table 1: Tax to GDP Ratio (%)

India China
2010-11 10.38 18.5
2011-12 10.17 19.3
2012-13 11.06 20.2
2013-14 10.56 21.3
2014-15 9.98 21.1
2015-16 11 20.4
2016-17 10.83 20.1
2017-18 11.17 18.9
2018-19 10.9 20.1

Tax to GDP Ratio (%)

25

20

15
India
China
10

0
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

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Total Tax Rate:-

Total tax rate measures the amount of taxes and mandatory contributions
payable by businesses after accounting for allowable deductions and
exemptions as a share of commercial profits.
The total tax rate of India is quite high, but is still lower than China.
In spite of such high tax rate, India's Tax to GDP Ratio is amongst the
lowest. It raises severe concerns over the overall Indian Tax Policy and
Administration.

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 Table 2: Total Tax Rate (% of Profit)

India China
2010-11 66.4 64.7
2011-12 67.6 62.5
2012-13 68.8 62.5
2013-14 68.6 55.7
2014-15 67.9 55.5
2015-16 68.2 55.5
2016-17 66.5 56.2
2017-18 64 52.1
2018-19 59.2 49.7

Total Tax Rate (% of Profit)

80

70

60

50
India
40 China
30

20

10

0
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

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Time to Comply:-

Time to prepare and pay taxes is the time, in hours per year, it takes to
prepare, file, and pay (or withhold) three major types of taxes: the
corporate income tax, the value added or sales tax, and labor taxes,
including payroll taxes and social security contributions.

Total hours spent by the businesses for completing the tax payment
processes in India is very high (252 hours) as compared to China
(Table 3). The Indian business houses have been spending more hours in
tax compliances.
India needs to simplify its tax structure to reduce its tax compliance
time. With the implementation of new tax structure, the GST, and
modified compliance structure, it may be possible that time consumed in
tax compliances for the businesses in India will come down further.

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 Table 3: Time to Comply (Hours)

India China
2010-11 254 358
2011-12 243 338
2012-13 253 318
2013-14 253 261
2014-15 253 261
2015-16 251 259
2016-17 216 207
2017-18 275 142
2018-19 252 138

Time to Comply (Hours)

400

350

300

250
India
200 China

150

100

50

0
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

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No of Payments:-

Number of tax payments means the total number of taxes paid by

businesses of a country, it also includes electronic filing. The tax is
counted as paid once a year even if payments are more frequent. In the
analysis it is observed that India lags behind in terms of number of taxes
paid by the businesses when compared with China.
In India this is on account of excessive number of taxes and multiplicity
of taxes, the number is larger. India needs to cut down on certain number
of taxes or club them. Due to complexity and multiplicity of taxes, India
has implemented one nation one tax i.e. GST. GST has replaced most of
the indirect taxes. Under the GST system of taxation, the number of
payments has been reduced to a certain extent. Besides, the time
required in complying with the tax payment formalities has also been
reduced.

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 Table 4: Tax Payments (Numbers)

India China
2010-11 33 9
2011-12 33 9
2012-13 41.11 9
2013-14 41.11 9
2014-15 41.11 9
2015-16 33.11 9
2016-17 13.94 9
2017-18 11.94 7
2018-19 10.94 7

Tax Payments (Numbers)

70

60

50

40 India
China
30

20

10

0
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

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Ease of Doing Business (Rank among 189 countries):-

Tax has a greater impact on doing business. More is the tax policy
simplified, higher is the ease of doing business. More is the tax policy
complex, lower is the ease of doing business.
This above effect can be seen here. India ranks 63 in ease of doing
business in India amongst 189 countries.
China is far very ahead of India in these rankings. But India has much
improved its ranking over the year from 142 to 63.

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 Table 5: Ease of Business Ranking (189)

India China
2010-11 132 91
2011-12 132 99
2012-13 134 96
2013-14 142 83
2014-15 130 80
2015-16 130 78
2016-17 100 78
2017-18 77 46
2018-19 63 31

Ease of Business Ranking (189)

160

140

120

100
India
80 China

60

40

20

0
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

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 Findings:-

1) India has low Tax to GDP Ratio.

2) India also has a significantly higher Tax Rates as Compared to China.
3) India has significantly higher time required for tax compliance as
compared to China.
4) The total no of Tax Payments in India (10.94) has improved and is
now slightly higher than in China (7).
5) India has improved its rank (63) a lot but still lags behind China (31)
in ease of doing business.

Conclusion & Recommendations:-

After comparing India with China on these 5 criteria, it is seen that
Indian tax structure lags behind on almost every indicator. However,
after implementation of GST, tax structure of is India is much simplified
owing to which an improvement in the ranking of ease of doing business
can be seen. But it should also be noticed that in spite of such high tax
rate, India's Tax to GDP Ratio is amongst the lowest. It raises severe
concerns over the overall Indian Tax Policy and Administration.
Also, India has lowest tax revenue -to-GDP ratio. The reasons behind
the low tax revenue to GDP ratio in India are evasion of tax, exemptions
and relaxations provided on various types of incomes and low per capita
income of country. Therefore it can be said that it becomes difficult to
meet required social and economic development needs of a country due
to budgetary constraints.
A country’s economic progress is hugely depends on the type of taxation
structure it adopts. Thus, still it requires a strong review and actions from
the government in direction of the tax structure.
There is a need that the central governments, state governments and
opposition parties should come together and work closely in improving
the taxation structure keeping away the political motives. We are
hopeful that the government will put these acts together in achieving the
desired results.

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 Reference:-

1. Wikipedia, "taxation in China,". [Online]. Available:

https://en.m.wikipedia.org/wiki/Taxation_in_China
2. https://tradingeconomics.com
3. http://www.chinatax.gov.cn/eng/
4. 9 PWC, "Worldwide Tax Summaries”
5. Wikipedia, "taxation in India,". [Online]. Available:
https://en.wikipedia.org/wiki/Taxation_in_the_India.
6. Dr. Banamali Nath (2017), “Goods and services tax: A milestone
in Indian economy”, International Journal of Applied Research,
Vol.3 (3), Pg. No. 699-702.
7. 2. Mrs. Rizwana Begum and Dr. K. S. Sarala (2017), “Brand
Positioning of Men Apparel Brands in Karnataka”, Sahyadri
journal of management, Volume I, Issue 1, pg.No.17 – 35.
8. 3. B. Anbuthambi1 and N. Chandrasekaran (2017) “Goods and
services tax (gst) and training for its implementation in India: a
perspective”, ICTACT journal on management studies, Vol-03,
issue-02 Pg. No.511 – 514.

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