GST regime must have minimal exemptions, fewer rates: IMF

Surabhi Washington DC | Updated on January 27, 2018


Says corporate tax rate should also be low with broader base, fewer exemptions

The International Monetary Fund has lauded New Delhi’s recent efforts to lower the compliance burden under the Goods and Services Tax, but said that efforts should also be made to lower the tax slabs and minimise exemptions.

“GST is an important reform. It has had some teething issues. The GST Council’s decision to lower the compliance costs is a good move…,” Ranil Salgado, Assistant Director, Asia and Pacific, IMF, told BusinessLine.

However, there is also scope to simplify the tax structure and bring down the number of tax rates, he added.

His comments come soon after the GST Council in its meeting on October 6 increased the threshold for the composition scheme and allowed more businesses to file quarterly returns under GST in order to simplify the tax scheme for small firms.

The IMF also called for further broadening the tax base and including all sectors under GST.

“The objective of GST should be to have a broader base with minimal exemptions. At present, electricity and fuel are out of GST, which creates issues for companies in the sector as they do not get input tax credit,” said, Andreas Bauer, Senior Resident Representative for India, IMF, adding that reducing the number of rates under GST over the medium term will also simplify the tax.

Finance Minister Arun Jaitley has also spoken about reducing the tax slabs under GST once tax collections reach “revenue neutral plus”.

The current model of GST with numerous exemptions and a four-tier rate structure — five per cent, 12 per cent, 18 per cent and 28 per cent — apart from a compensation cess and exempt items and different rates for gold (three per cent) and rough diamonds (0.25 per cent), is very different from the original plan of one single tax rate.

Direct taxes

The IMF officials, who deal with India, also called for broadening the corporate tax base and reducing exemptions.

“The IMF has supported the government’s move to lower the corporate tax rate and bring it down to 20 per cent. There is scope to simplify the corporate tax and reduce exemptions,” Bauer said.

Salgado agreed and said that removal of exemptions will improve transparency of tax laws and also reduce disputes.

(The writer is in Washington DC as part of the IMF Journalism Fellowships 2017 to cover the annual meetings of the IMF and World Bank.)

Published on October 12, 2017

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