FUTURE OUTLOOK

Tax reform has been an integral part of the economic reform process in the country. Much reforms have been done by now, though the pace and method at times have not been so praiseworthy. As India’s reforms have been gradual and incremental the laxity in tax reforms might be due to this also. In the backdrop of the developments by far, a five-pronged strategy has been suggested27 by the latest Economic Survey:

(i) GST should be broad in coverage to include activities that are sources of black money creation—land and other immovable property;

(ii) Individual income tax rates and real estate stamp duties should be reduced;

(iii) The income tax should be widened gradually and which could progressively encompass all high incomes;

(iv) The timetable for reducing the corporate tax rate should be accelerated; and

(v) Tax administration should be improved by reducing discretionary powers of tax officials and improving accountability.

In the process of collecting taxes on newly disclosed and undisclosed wealth (in the aftermath of demonetisation) tax harassment must be avoided

by officials at all rungs of hierarchy. The tax administration must shift to greater use of data, smarter evidence-based scrutiny and audit, greater reliance on on-line assessments with less physical interaction between tax payers and tax officials. Once GST is enforced much more data will be available on individual transactions—by using this data together with greater information sharing between the direct and indirect tax departments at the centre, along with coordination with the states, greater compliance can be achieved through ‘non-punitive means’—in relation to indirect as well as direct tax collections. The promise of digital age can be used to improve the tax administration of the country in a big way.

1. P.A. Samuelson and W.D. Nordhaus, Economics, (New Delhi: Tata McGraw Hill, 2005), p. 327.

2. For further reference, J.E. Stiglitz and C.E. Walsh, Economics, (New York: W.W. Norton & Company, 2006), pp. 378–79.

3. Samuelson and Nordhaus, Economics, pp. 75–77.

4. Ibid., pp. 75–77.

5. Ibid., p. 329.

6. Ibid., p. 329.

7. Samuelson and Nordhaus Economics, 329; Stiglitz and Walsh, Economics, p. 380.

8. Ibid.

9. Samuelson and Nordhaus, Economics, p. 329.

10. Stiglitz and Walsh, Economics, p. 382. A comprehensive analysis of good tax structure is also given in Meade Committe Report, Institute for Fiscal Studies (IFS), Washington DC, 1978.

11. Based on the discussion on Government Expenditure in Samuelson and Nordhaus,

Economics.

12. Ibid., p. 333

13. Derived from the points forwarded by the GoI and the Empowered Group of State Ministers.

14. Raja C. Chelliah, Pawan K. Aggarwal, Mahesh C. Purohit and R. Kavita Rao, Introduction to Value Added Tax , in Amaresh Bagchi (ed.). Readings in Public Finance (New Delhi: Oxford University Press, 2005), pp. 277–78.

15. Ibid.

16. Vijay Kelkar Task Force on the FRBM Act 2003, Ministry of Finance, Economic Survey 2004-05, (New Delhi: Government of India, 2005), p. 40.

17. First it was from the National Institute of Public Finance and Policy (NIPFP) followed by the Subramanian Committee, during 2016-17.

18. Based on the meetings of the GST Council, till February 2017.

19. Economic Survey 2016-17, Government of India, Ministry of Finance, N. Delhi, Vol. 1, pp. 3 & 78.

20. Constitution (101st Amendment) Act, 2016 which clears the implementation of the new federal indirect tax GST subsuming 5 central and 8 state taxes.

21. Statement of Revenue Forgone, Budget documents & CSO, MInistry of Finance,

Economic Survey 2015–16, p. 37.

22. Grandfather Clause – a clause in a new law that exempts certain persons or businesses from abiding by it. For example, suppose a country passes a law stating that it is illegal to own a cat. A grandfather clause would allow persons who already own cats to continue to keep them, but would prevent people who do not own cats from buying them. Grandfather clauses are controversial, but they are common around the world. [Source: Farlex Financial Dictionary, Farlex Inc., N. York, USA, 2012; Collins English Dictionary- Complete & Unabridged, HaperCollins, N. York, USA, 2003.]

23. Department of Revenue Ministry of Finance, Government of India, New Delhi, March 2017.

24. Ministry of Finance, Department of Revenue, Government of India, N. Delhi, April 2016.

25. Ministry of Finance, Economic Survey 2015–16, Vol. 1, pp. 105-117.

26. Based on the Union Budget 2017-18 and Economic Survey 2016-17.

27. Economic Survey 2016-17, Government of India, Ministry of Finance, N. Delhi, Vol. 1, p. 78.