Thirteenth Finance Commission chairman Vijay Kelkar current nearly on the TIOL Fiscal Award occasion.
| Photo Credit: Special Arrangement
A key architect of India’s tax reforms and the chairman of the Thirteenth Finance Commission Vijay Kelkar has referred to as upon the nation’s subsequent government to undertake pressing reforms within the “unnecessarily complex” Goods and Services Tax (GST) regime, corresponding to switching to a single tax price of 12% and sharing revenues with native governments and municipal companies.
Mr. Kelkar has additionally mooted the creation of an unbiased secretariat for the GST Council, the apex-decision making physique for the oblique tax rolled out in July 2017, as the present association of the Union Government driving the secretariat could also be thought-about problematic by States.
He termed the simplification of the GST construction, which has a “plethora of rates” and a compensation cess on some items, as a “critically important fiscal reform” to take the GST regime to its most pure vacation spot. Setting the tax charges “largely with the objective to maintain revenue neutrality”, as completed by India, is “counter-productive”, Mr. Kelkar argued.
Single GST price wanted
“The genesis of the current GST frauds lies in the very structure of the GST rates, as high rates of GST make it lucrative for the fraudsters to evade taxes,” he confused after receiving the TIOL Fiscal Award late Saturday. Instead, he recommended {that a} single GST price of 12%, with revenues shared equally with all of the tiers of the government and Union Territories, be launched on the earliest.
“In most of the developed and emerging market economies as well, there is a policy of single GST or VAT [Value Added Tax] rate on goods and services. The countries having a single rate and simple GST or VAT laws have been successful in optimising tax revenue and minimising tax disputes,” the previous Finance Secretary famous. Of nations with GST or VAT techniques, 80% have opted for a single tax price, together with Singapore, New Zealand, the United Arab Emirates, and Japan.
Stating {that a} single GST price is “an unmet goal” in India, he recalled {that a} single price of 12% had been really useful by the 13th Finance Commission “very early on in the GST debate”. It would simplify the construction, quell virtually all classification points, and assist promote manufacturing and exports, he stated.
“The age-old tax policy of having a differential tax rate for ‘must have’ and ‘nice to have’ goods and services should be done away with. The revolutionary reform of introduction of a single GST rate, with additional non-VAT-able taxes such as carbon taxes on a few demerit goods like hydrocarbons, is now essential,” Mr. Kelkar asserted.
‘Share GST with local bodies’
While the Union Finance Ministry offering help to the GST Council throughout its formative decade is “understandable”, Mr. Kelkar cautioned that it’s potential that State Governments, who’re additionally members of the GST Council with equal rights, could not at all times really feel that the current administrative association is impartial and unbiased when it comes to its help or the recommendation it gives to the GST Council.
The veteran economist additionally pleaded for GST revenues to be shared with the third tier of the government created by the 73rd and 74th Amendments to the Constitution.
“Unfortunately, our urban local bodies are woefully short of the needed fiscal base to undertake investments for vital infrastructure and for the supplies of needed high quality public goods. Equitable sharing of the GST with the third tier will go a long way in strengthening the fiscal base of our urban governments and also to deepen democracy and governance at the grass root level,” Mr. Kelkar stated, noting that that is prevalent in vibrant democracies internationally.
“To enable this, we will require a Constitutional amendment, firstly to create the consolidated fund for the third tier of government; and secondly, GST reforms, where GST will be shared equitably by the Centre, State, and the local governments such as municipal corporations. This is only fair and appropriate, as GST is a consumption tax and taxpayers should see direct benefits accruing from their payment of the taxes,” he underlined. Such an association, he famous, would additionally bolster the standard of governance supplied by native governments as residents’ demand for high quality public items will develop louder.
