Mumbai: India can cut taxes, keep its tax to GDP ratio low and still collect robust taxes because of its large population. However, experts speaking at a Think Change Forum roundtable said the informal sector must come under the tax net to enable the transition to a developed economy with a $25 trillion GDP by 2047.
Sudhir Kapadia, senior partner, EY-India, said, “The traditional high Tax Rates This does not result in any significant increase in tax.Recognising this fact, governments in India since 1991 have explicitly advocated moderate tax rates that have increased levels of transparency and compliance. Going forward, it remains to be seen how much fiscal space governments will have to further reduce tax rates from current levels. This is especially so as there is a continued demand for government spending, especially in physical and social infrastructure, to be able to meet higher economic growth targets. This is a delicate balancing act that governments will have to grapple with.”
He said, “The time has come to work hard on reforming direct taxes. There could be a simplified rate structure for businesses and individuals, a simple three rate structure with low/medium rates, no surcharges and cesses and no significant deductions.”
The number of taxpayers under GST is expected to increase from 60 lakh in 2017 to 1.40 crore in 2023 and over 114 crore returns are reported to be filed by June 2023. Experts at the roundtable advocated a comprehensive GST regime. tax base Which will increase revenue collection.
Kaushik Dutta, co-founder director, Thought Arbitrage Research Institute, said, “Although GST has brought significant improvements in our lives Taxation He said the government has made improvements in the system penetration, total collections, buoyancy, reduction in movement time through e-way bills, greater use of technology, etc., but several issues still persist. These include multiple rates and operational challenges such as the need for businesses to register in different states, he said.
“A lot has been said about rates on GST and clearly it is time to drastically reduce the number of rates in the GST framework. It is also time to ensure that we do not have any bottlenecks related to availing input tax credit. Income tax revenues have grown steadily, but we need to have a continued focus on taxpayers’ experience with tax administration, and ensuring that the filing process remains seamless and hassle-free,” Kapadia said.
“Tax to GDP ratio cannot increase significantly and this requires a major conceptual shift. India’s tax to GDP ratio is impacted by the presence of the informal sector, which still accounts for between 30% and 35% of the economy. A simplified GST regime will enable them to join the formal economy, take input tax credit and become competitive. Tax evasion remains a major challenge along with classification issues. Inverted duty structure is also a hurdle. Another sector that GST has not been able to break into is e-commerce. So, there are challenges, and they need to be addressed,” Dutta said.
Ranganath Tannir, Secretary General, Think Change Forum said, “Given India’s emerging position in the world order, all stakeholders must work towards a single goal – making India a developed country by 2047. To do this we need bold decisions and new ideas, such as reforming our taxation ideology to reduce tax rates and increase the taxpayer base, without losing focus on improving the tax-GDP ratio. Such restructuring will encourage more business activities and individuals to contribute and join the formal economy.”
Five key reforms were suggested that could channel the country’s economic resources toward growth without reliance on higher taxes, external investments, or borrowing:
1. Pro-growth and investment policies for higher income and consumption: Implementing pro-growth and investment policies aimed at promoting higher income and consumption levels is crucial for sustainable economic development. Such policies include initiatives to encourage investment, stimulate entrepreneurship and promote innovation in various sectors of the economy.
2. GST reforms will broaden the base, remove cascading effect of taxes: Simplifying the law and reducing slabs to ease compliance is an important step towards achieving the objective of higher tax revenues. By simplifying GST regulations, businesses can navigate the tax system more effectively, reducing administrative burden and boosting compliance
3. Unlock money stuck in tax disputes, simplify laws and compliance: Resolving pending cases at the CIT (Appeals) level is critical, as over 5 lakh cases amounting to Rs 14.2 trillion remain unresolved as of March 31, 2022. Simplifying laws and compliance processes can speed up the resolution of these disputes, facilitate the release of blocked money and lead to a more efficient and equitable tax system.
4. Lower tax rates with minimal deductions: This involves establishing a uniform, low corporate tax rate devoid of surcharges and cess. Additionally, simplifying the tax slab structure by eliminating deductions ensures transparency and ease of compliance. Such measures not only promote tax efficiency but also provide businesses with greater clarity and certainty about their tax liabilities.
5. Tech-enabled and smart tax administration for effective enforcement: Improving taxpayer services, especially in interfacing with the centralised processing centre, is imperative. Also, leveraging digitisation to encourage voluntary compliance and prompt tax payments, as well as enabling robust data intelligence and analytics, is essential. By using technology in these ways, tax officials can streamline processes, enhance transparency and strengthen enforcement mechanisms.
Sudhir Kapadia, senior partner, EY-India, said, “The traditional high Tax Rates This does not result in any significant increase in tax.Recognising this fact, governments in India since 1991 have explicitly advocated moderate tax rates that have increased levels of transparency and compliance. Going forward, it remains to be seen how much fiscal space governments will have to further reduce tax rates from current levels. This is especially so as there is a continued demand for government spending, especially in physical and social infrastructure, to be able to meet higher economic growth targets. This is a delicate balancing act that governments will have to grapple with.”
He said, “The time has come to work hard on reforming direct taxes. There could be a simplified rate structure for businesses and individuals, a simple three rate structure with low/medium rates, no surcharges and cesses and no significant deductions.”
The number of taxpayers under GST is expected to increase from 60 lakh in 2017 to 1.40 crore in 2023 and over 114 crore returns are reported to be filed by June 2023. Experts at the roundtable advocated a comprehensive GST regime. tax base Which will increase revenue collection.
Kaushik Dutta, co-founder director, Thought Arbitrage Research Institute, said, “Although GST has brought significant improvements in our lives Taxation He said the government has made improvements in the system penetration, total collections, buoyancy, reduction in movement time through e-way bills, greater use of technology, etc., but several issues still persist. These include multiple rates and operational challenges such as the need for businesses to register in different states, he said.
“A lot has been said about rates on GST and clearly it is time to drastically reduce the number of rates in the GST framework. It is also time to ensure that we do not have any bottlenecks related to availing input tax credit. Income tax revenues have grown steadily, but we need to have a continued focus on taxpayers’ experience with tax administration, and ensuring that the filing process remains seamless and hassle-free,” Kapadia said.
“Tax to GDP ratio cannot increase significantly and this requires a major conceptual shift. India’s tax to GDP ratio is impacted by the presence of the informal sector, which still accounts for between 30% and 35% of the economy. A simplified GST regime will enable them to join the formal economy, take input tax credit and become competitive. Tax evasion remains a major challenge along with classification issues. Inverted duty structure is also a hurdle. Another sector that GST has not been able to break into is e-commerce. So, there are challenges, and they need to be addressed,” Dutta said.
Ranganath Tannir, Secretary General, Think Change Forum said, “Given India’s emerging position in the world order, all stakeholders must work towards a single goal – making India a developed country by 2047. To do this we need bold decisions and new ideas, such as reforming our taxation ideology to reduce tax rates and increase the taxpayer base, without losing focus on improving the tax-GDP ratio. Such restructuring will encourage more business activities and individuals to contribute and join the formal economy.”
Five key reforms were suggested that could channel the country’s economic resources toward growth without reliance on higher taxes, external investments, or borrowing:
1. Pro-growth and investment policies for higher income and consumption: Implementing pro-growth and investment policies aimed at promoting higher income and consumption levels is crucial for sustainable economic development. Such policies include initiatives to encourage investment, stimulate entrepreneurship and promote innovation in various sectors of the economy.
2. GST reforms will broaden the base, remove cascading effect of taxes: Simplifying the law and reducing slabs to ease compliance is an important step towards achieving the objective of higher tax revenues. By simplifying GST regulations, businesses can navigate the tax system more effectively, reducing administrative burden and boosting compliance
3. Unlock money stuck in tax disputes, simplify laws and compliance: Resolving pending cases at the CIT (Appeals) level is critical, as over 5 lakh cases amounting to Rs 14.2 trillion remain unresolved as of March 31, 2022. Simplifying laws and compliance processes can speed up the resolution of these disputes, facilitate the release of blocked money and lead to a more efficient and equitable tax system.
4. Lower tax rates with minimal deductions: This involves establishing a uniform, low corporate tax rate devoid of surcharges and cess. Additionally, simplifying the tax slab structure by eliminating deductions ensures transparency and ease of compliance. Such measures not only promote tax efficiency but also provide businesses with greater clarity and certainty about their tax liabilities.
5. Tech-enabled and smart tax administration for effective enforcement: Improving taxpayer services, especially in interfacing with the centralised processing centre, is imperative. Also, leveraging digitisation to encourage voluntary compliance and prompt tax payments, as well as enabling robust data intelligence and analytics, is essential. By using technology in these ways, tax officials can streamline processes, enhance transparency and strengthen enforcement mechanisms.
