As a reform measure, the Goods and Services Tax (GST) would result in dramatic changes in the Indian tax system, the Economic Survey 2015-16 said on Friday.
“GST rollout will be a major reform measure in the global tax history as it is estimated to affect 2-2.5 million excise and service tax payers across the country when implemented,” said the survey, presented in the Lok Sabha by Finance Minister Arun Jaitley.
The tax requires a constitution amendment bill, which has been passed by the Lok Sabha last year but awaits approval of the Rajya Sabha where it is stuck as the government does not have a majority.
The GST will also check speculation in real estate with higher property tax rates, it said.
The survey proposed widening the tax net to 20 percent from 5.5 percent of earning individuals, reasonable taxation of the better-off and income from real estate and agriculture, annd phasing out of the tax exemption raj.
It also called for widening the individual tax payers’ base as 85 percent of the economy remains outside the tax net despite the number of tax returns filed picking up since mid-1980s.
As a step towards building fiscal capacity, the survey suggested that the easiest way to widen the tax base would be not to raise exemption thresholds, unlike in the past when they were raised much more rapidly than underlying income growth.
Calling for a review and phasing out of the tax exemption raj that benefited the richer private sector, the survey recalled the promise of reducing corporate taxes to 25 percent from 30 percent and phasing out of exemptions, reasonable taxation of the better-off individuals in industry, services, real estate or agriculture.
It identified higher property tax rates with periodic updation to improve local government finances, discourage speculation in real estate sector and pave way for smart cities.
Another alternative to fiscal consolidation will be to reduce subsidies to the well-off amounting to Rs.1 lakh crore by better targeting subsides to the poor.