CHENNAI: Parthasarathi Shome, taxation expert and former adviser to Indian finance minister, believes the Goods and Services Tax is a reform “much less than perfect” but a much needed change to address structural distortions in India’s taxation. He cautioned in the same breath that administrative reforms and raising the game in ease of doing business are necessary to make the process meaningful.
Shome, among other positions, had headed the committee on the General Anti-Avoidance Rules. He had also contributed to the framing of the GST laws. Speaking at the Madras Institute of Development Studies here, he Quoting World Bank statistics he said India’s ranking on a range of parameters such as ease of tax-paying, dealing with insolvency, cross-border trade and other business processes was far behind. “The bottomline is, Will this end in ease of doing business?” Shome asked the audience.
Shome batted for a milder tax rate, lest the country will be forced to battle with a high tax evasion menace. He also expressed concern over large contributors to the Gross Domestic Product like alcohol and tobacco being kept out of the tax base of the Goods and Services Tax. Particularly, the cascading effect expected out leaving out certain commodities out of the GST purview will result in price distortions seen in the current tax systems continuing after the new tax law kicks in.
Petroleum products, Electricity duty, alcohol for human consumption and stamp duty on immovable properties are incidences that are not subsumed under the new law. For a producer in the supply chain of these products, getting input tax credit could pose problems once the GST law kicks in. “In many cases, nearly 50% of the GDP will be kept out of the GST,” he noted. Petroleum products represent nearly a half or a fourth of many states’ tax revenues. When it comes to stamp duty, Maharashtra draws a fifth of its revenues while Bihar garners 12%, Shome said.
On the GST Council, Shome said neither states nor the Centre can single-handedly change the GST Laws. “There will be stability,” he said, as the Centre gets a third of the power share and two-thirds of the power rest with the states.
GST, which basically brings goods and services on par, will work in the presence of the a strong and able monitoring cell with field officers to report on how the new tax law is getting executed, Shome added.