The head of the Prime Minister’s Economic Advisory Council, Bibek Debroy, said on Monday that the current tax system does not generate enough revenue to meet the financing needs to build infrastructure and provide services, and said India should introduce a single tax rate for goods and services Services (GST) and have an exemption. fewer tax regimes.
Combined center and state tax collection is just 15 percent of GDP, while government spending needs on public infrastructure, education, health care and defense are about 23 percent of GDP, he said. “Regarding GST, it’s my submission, so there should be a single sentence. I don’t think we’ll ever get it,” Debroy said, speaking at a TIOL Tax Congress 2022 event here.
There are now four major GST plates: 5 percent, 12 percent, 18 percent, and 28 percent. Some minus and luxury goods, which fall in the 28 percent category, attract additional levies, the proceeds of which go to a separate fund designed to compensate states for revenue shortfalls and the repayment of compensation-related loans.
Debroy said eliminating the differential tax rates between elite and mass consumption products would reduce litigation. “As a community, we need to recognize that GST really should be the same regardless of the product. If progressiveness is to be introduced, it is best done through direct taxes, not GST, or indirect taxes,” Debroy said, adding that these are his personal views. The Commerce Department’s estimate of the non-revenue GST rate prior to the introduction of GST was 17 percent, but the average GST rate is currently 11.5 percent, he said. “We must be willing to pay taxes, or we must be willing to settle for less provision of public goods and services,” he said, adding that the revenue lost due to government exemptions is 5-5, 5 percent of GDP.
While tax evasion is illegal, tax avoidance through the use of exemption clauses to reduce the tax burden is legitimate. “Do we need these tax exemptions? The more tax exemptions I have, the more complicated it gets. Why can’t we have a simple tax structure without all exceptions? We have to agree at some point that we’re going to move to a completely exemption-free system,” Debroy said. The artificial difference between corporate taxes and personal income taxes (PIT) should be eliminated, he added. “Many unincorporated businesses pay taxes as part of personal income taxes. This (eliminating the difference) will also reduce administrative compliance,” he said.
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