Fiscal democracy – Opinion News | The Financial Express

Former finance secretary Vijay Kelkar has recently renewed his pitch for simplification of the “unnecessarily complex” structure of India’s Goods and Services Tax (GST) and called for further democratisation of its administration, and the resource-sharing mechanism. His preference for a single GST rate (12%) hogged the headlines, but a few other suggestions made by the veteran policymaker need greater attention. Kelkar has virtually debunked the practice of setting tax rates “largely with the objective to maintain revenue neutrality”. He called this “counter-productive”, and pointed out that high rates would make it lucrative for the fraudsters to evade taxes. This is when policymakers in the saddle are contemplating to raise the average GST rate by a substantial 5-6 percentage points to the so-called “revenue neutral rate” (which means rate increase for a broad set of goods). Kelkar also advocated “equitable” sharing of GST proceeds among the three tiers of government that includes the local governments (gram/block/zilla panchayats and municipal corporations), and a larger role of states in the GST Secretariat.These are sage counsels, and would require to be acted upon with a sense of urgency by the new government after the polls, if India were to take its indirect tax reforms to its “natural destination”. Unlike many others, Kelkar doesn’t seem to think that wholesale rate hikes are indispensable to improve the tax-GDP ratio. Bibek Debroy, chairman of the Economic Advisory Council to the Prime Minister, too, had underlined the need for a less complex, single-rate GST, but he said, “We must either be willing to pay higher taxes or settle for reduced delivery of public goods and services.” Debroy feels that the continuing wide gap (8% of GDP) between tax revenues and the requirement of government spending on infrastructure, education, healthcare and defence, would need to resolved without any further delay, and this might also need higher tax rates.

Fiscal democracy – Opinion News | The Financial Express – Reader Mode