‘GST, DTC Should Follow Global Norms’

ICRIER head Parthasarathi Shome finds enough to cheer about—with caveats—on taxation reforms in Budget 2011. Excerpts from an interview with Lola Nayar:

Major structural reforms: The major reform ideas in the budget are DTC and GST, both of them are very structural measures. The discussion and debate so far has been focused on the date (of commencement). It is more important to ensure that the structure is right and at par with global norms.

Tilt towards indirect taxes: By not having net revenue measure, the finance minister has emphasised that he wants more revenue from indirect rather than direct taxes. In the short run, this is not the greatest idea. You should emphasise more on direct taxes as our economy moves forward, and expand the income tax base.

Seeking revenues: The finance minister is relying on high rate of taxation growth of 24.9 per cent next year. Some of it is obviously coming from GDP growth— the nominal GDP growth is about 15 per cent but he is getting 26 per cent nominal revenue growth so there is real revenue growth of 10 per cent. The FM must be depending a lot on administrative measures together with buoyancy growth...one should be given a little more indication of how all this has been derived.

Administrative tax reforms: Main reforms that have taken place are in the administrative area, which we usually don’t talk about. By advancing electronic filing, by sharpening the electronic TDS mechanism, by helping the low income-tax payer, by processing refunds much faster, by having a major computerised programme for customs processing—these are very important advancements which are the result of many years of spade work. These are crucial reforms.

Need to broaden MAT base: Bringing SEZs under the Minimum Alternate Tax (MAT) is a bold, reform-oriented move. It would be important in a reform sense to look at what is in the MAT base and how are you defining it as you want the corporates to pay on their broadest base. But base-broadening of MAT hasn’t taken place. Another area of micro short-term reforms is in customs and excise duty exemptions. Out of excise duty, Pranab has withdrawn exemptions from 130 consumer goods. Also, he has brought in professional services under the ambit of services tax.