Stating that the current taxation system is not generating enough revenues to meet funding requirements for infrastructure creation and services delivery, Prime Minister’s Economic Advisory Council Chairman Bibek Debroy on Monday said India should have a single goods and services tax (GST) rate and an exemption-less tax regime.
The combined tax collection of Centre and states is just 15 per cent of GDP, while the requirement for government spending on public infrastructure, education, healthcare and defence is around 23 per cent of GDP, he said. “On GST, it is my submission therefore there should be a single rate. I don’t think we will ever get it,” Debroy said addressing a TIOL Tax Congress 2022 event here.
There are four major GST slabs now: 5 per cent, 12 per cent, 18 per cent and 28 per cent. Some demerit and luxury goods, which are in the 28 per cent bracket, attract additional levy of cesses, the proceeds of which go to separate fund meant to compensate states for revenue shortfall and repayment of compensation related loans.
Debroy said that if the differential tax rates for products of elitist nature and those of mass consumption is done away with, it would lessen litigation. “As a polity, we need to recognise that the GST really should be the same regardless of the product. If progressivity is to be introduced, it is best done by direct taxes, not GST, or indirect taxes,” Debroy said, adding that these were his personal views. The estimate of GST revenue neutral rate made by the Department of Economic Affairs made before the GST rollout was 17 per cent, but the average GST rate at present is 11.5 per cent, he said. “We must be willing to pay tax or we must be willing to settle for reduced delivery of public goods and services,” he said, adding that the revenue foregone because of exemptions by the government is 5-5.5 per cent of GDP.
While tax evasion is illegal, tax avoidance, by using exemption clauses to reduce tax burden, is legitimate. “Do we need these tax exemptions? The more tax exemptions I have, the more complicated it becomes. Why can’t we have a simple tax structure devoid of all exemptions. We must at some point agree we will move to a completely exemption-less system,” Debroy said. The artificial difference between corporate taxes and personal income taxes (PIT) should be removed, he added. “A lot of unincorporated businesses pay taxes under personal income taxes. This (removing difference) will also reduce administrative compliance,” he said.
