‘Political parties are coming together on Goods & Services tax, but some gaps remain’
Implementing the Goods and Services Tax (GST) is the best signal India could send out to global investors that the country “is open for business”, according to Planning Commission Deputy Chairman Montek Singh Ahluwalia.
Delivering the first Dr Raja J Chelliah Memorial Lecture, organised by the Southern India Chamber of Commerce and Industry and the Madras School of Economics, here on Thursday, Ahluwalia said an efficient tax regime is key to sustaining government revenue for social and physical infrastructure development and a sustainable fiscal policy.
Bringing in GST is the most important tax reform that is needed along with bringing down customs duty in a globalised economic environment. Political parties are coming together on implementing GST, but some gaps remain, he added.
It is important that the tax treatment is “globally accepted as reasonable” and there is consistency in tax policy to instil investor confidence. With multinational companies setting up subsidiaries here and Indian companies going abroad, tax administration and calculations should be aligned globally. Rules on transfer of funds between parent companies and subsidiaries should be clear, Ahluwalia said.
Tax rates should rule low across a wide span of products and services with little inter-product differentiation – fewer slabs.
Role of Private sector
The private sector’s role in driving tax reforms is important, he said. Every year, industry associations’ representations go into the nitty-gritty of tax rates. Instead, they should seek an increase in tax rates where they are below ideal and decreases where they are high.
Globally, countries are moving away from customs duties and focussing on increasing revenue from domestic taxes. With India entering into a free trade agreement with ASEAN, which will mean nil import duties on goods and services from the region, and a similar initiative expected with South Korea and Japan, the overall duty has to be brought down to prevent diversion of trade, Ahluwalia added.
The present quality of human capital cannot sustain high economic growth rates in the long run. The average number of years of education in India is less than five. Public investment is needed in education, healthcare, infrastructure and other government social expenditure. Subsidy expenditure should be disciplined and universal coverage of benefits avoided ensuring the poor benefit, Ahluwalia said.
Countries across the globe are moving towards direct cash transfer of subsidies, which ensures targeted delivery of benefits without leakage. State Governments should not be allowed too much flexibility in this issue and those governments that want to go ahead with direct transfer should be allowed, he said.