Recent Tax Reforms and the Road Ahead- An Analytical View, MCCI

Merchant's Chamber of Commerce and Industry (MCCI) organized an Interactive Session with Dr.Parthasarathi Shome, to discuss “Recent Tax Reforms and the Road Ahead- An Analytical View”, on 7 April, 2017, in Kolkata. It was attended by representatives of industry, academia, media and various professions. He discussed selected emerging taxation issues such as selected tax trends, Goods and Services Tax (GST), corporate tax rate structure, international taxation of income, and new search and seizure rules. He started by posing a question to the businessmen and dealers, Have you thought about why India is moving from VAT to GST—what is to be gained? He proceeded with explaining the intention and the outcomes from the attempt to change over. He explained trends in Direct and Indirect tax as percent of tax revenue collected and Buoyancy of tax revenue with illustrations and graphs.

He discussed the purpose to move to GST, because GST is less like an indirect tax and more like a direct tax. Ideally, if structured right, it should be transparent, to indicate who is bearing the burden of GST. He explained with an elaborated example that because in GST any tax on input tax should be credited or netted out, so the supplier should never add the input tax into the sale price of his output. This was not the case when India had a plethora of excise taxes on goods and services. Because input tax credit (ITC) was not allowed, sellers happily built in the excise taxes they had paid, into the prices they charged from their buyers. Therefore, in the supply chain, there were embedded taxes and one never knew what should have been the correct market price had all the input taxes along the supply chain had been netted out. Clearly therefore GST is better than excises. Further, he explained the best GST structure.

However, he explained that there are many exemptions from the forthcoming GST i.e. goods that have been excluded from the GST base, that it implies that a huge portion of our GDP (around half perhaps) when sold, will not be allowed any input tax credit. So significant cascading of taxes is likely to continue. Regarding GST rates, he said that GST should ideally have only one or two rates with no difference in tax rates between goods and services. However, the GST rates are going to be zero (exempted goods), 5, 12, 18 and 28 per cent plus possibly a Cess to finance compensation by the Centre to states. This is a high number of rates. He asked rhetorically, Can a developing country such as India afford such complication? So can we call the proposed structure a GST? We can call it GST if we wish but it does not stand on merit when we compare it globally.

He briefly discussed the prevailing corporate tax rate structure in India. He gave cross-country analysis of effective tax rates in BRICS, OECD, Latin America, and Asian countries and, accordingly, why India should reduce its corporate tax rate. He talked about the international taxation of income and shed light on specific areas such as General Anti-Avoidance Rules (GAAR), Place of Effective Management (POEM), and Base Erosion and Profit Shifting (BEPS). He discussed the latest search and seizure rules as excessive powers of tax authorities, and put them in the perspective of the recommendations of the Tax Administration Reform Commission (TARC) that were more cautious in this particular area.