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12/29/2015

Howmanymoretaxesdoweneedtopay?

How many more taxes do we need to pay?


The plethora of levies has throttled demand and dashed hopes of having a better
standard of living.

MONEY | 4-minute read| 27-12-2015

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ANSHUMANTIWARI @anshuman1tiwari

Publicmemoryisusuallyshortbutthememoryoftaxationisevenshorter.
Benchmarkbrentcrudemighthavetestedanunprecedentedlowof$37per
barrel,butdomesticpetrolanddieselpricesarestillrulinghigherthanksto
heavytaxes.Ifonlythedebateongoodsandservicestax(GST)revolved
aroundexplainingthisdichotomy,aviabletaxstructurecouldhaveemerged.
Or,ifonlywehadlearntlessonsfromthevalueaddedtax(VAT)rollout
duringthelastdecade,wecouldhavebetterfixedtheshortcomingsintax
structure.Nowthattheimportanceofhavingacommonanduniformtax
structureisobvioustoall,itistimetoexpandthedebateonGSTtothe
perennialinconsistenciesofIndiasindirecttaxation.
MovingaheadwithGSTbysweepingthedebateonIndiaslopsidedtax
structureunderthecarpetcanbedangerousatatimewhenIndiaisgearing
upforgreentaxestocurbecologicallydamagingconsumptionand
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Howmanymoretaxesdoweneedtopay?

production.Greentaxeswillconstitutecongestiontax,pollutiontaxand
greenenergytaxwhicharealreadybeingsuccessfullyexperimentedin
countriesaroundtheworld.Beforeimplementingthesenewtaxes,itis
necessarytosoftenindirecttaxesthatinflatethecostoflivingandbasic
consumption.
Thereportoftheadvisortothefinanceministryhassuggestedaframework
ofathreelayeredGSTrateregime.Thefirst12percentminimumrate
showsthatthedaysofsingledigitCentralandstateratesofexciseandVAT
willsoonbeover.Thatis,ahostofmassconsumptionproductstaxedatsix
toeightpercentwillattracta12percentlevy.Atthesecondlevel,theservice
taxwillclimbfromtheexisting14.5percentto19percent.Itislikelythata
newtaxwillbeintroducedforpetroproductswhileluxuryproductswill
attractataxrateof40percent.Stategovernmentsareyettopresenttheir
pointsofviewonthis.Theymayproposeevenhighertaxrateswhich,in
turn,wouldfuelsubstantialinflationoverthenextthreetofouryears.
Theconcurrenttaxstructureofhavingahighertaxonconsumptionanda
loweroneonincomeisarchaic.Despiteseveralmajorreformsoverthelast
twodecades,wehavenotbeenabletomakeourtaxstructuremodern,easy,
andinspiring.Unlikethegloballyestablishedprincipleofhavingahighertax
onnetearningsandalimitedtaxonconsumption,Indiakeepsincometax
andcorporatetaxlower,whiletaxesarehigheronconsumptionasaresultof
aspateofindirectlevieslikeexcise,servicetaxandVAT.Concessionsin
incometax(directtaxes)benefitasmallgroupofpeoplewhileincreasein
indirecttaxesdampenstheconsumptionofaverylargepopulation.
Theoretically,alargetaxbase(alargenumberoftaxpayers)necessitatesa
lowerrangeofindirecttaxrates.However,withthegrowthofeconomy,
increasedproduction,growingconsumptionandabiggertaxpaying
population,indirecttaxesandtheirrates(excise,servicetax,surcharge,cess)
havebeenincreasedconsistently.Ontheotherhand,eventhoughincome
taxandcorporatetaxhavebeenreduced,thenumberofpeopleunderthe
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ambitofindirecttaxesisstillunderfourcrore,whichisonlythreepercent
ofthepopulation.
OurexperienceswithVATsuggestthathavingacaponthemaximalGST
rateisimportant.VATwasintroducedinthestatesin2005replacingthe
statelevelsalestaxsystemwithasimilarthreelayeredratesstructure.
However,withinthreeyearsofitsimplementationallrulesvanishedwith
differentstatesimposingdifferenttaxratesonthesameproduct.Infact,
consumerpriceshavebeengoingupconsistentlyinlocalmarketsasmostof
themassconsumptionproductshavebeenelevatedtohigherslabsofVAT.
OwingtoIndiascommitmenttoglobalpacts,importdutiesinthecountry
havedeclinedfast,andtocompensateforthesame,budgetshavemilked
exciseandservicetaxes.Thishasledtocostlierproductioninthecountry
resultinginreducedindustrialcompetitiveness.
Nowthatthegovernmentismullingdoublingthesalaryofministers,the
debateontaxationshouldbeginwithcontrolovergovernmentexpenditure,
whichhasalreadyshotthroughtheroofthankstopopulistexperiments.
Governmentswillhavetolimittheirsizesandrolestogetridoftaxationthat
shrinksconsumption.
Indiaisanationofaplethoraoftaxes,whichhasthrottleddemandand
dashedhopesofhavingabetterstandardofliving.Astheeraofgreentaxes
islooming,itisessentialtoconfronttheneedofdoingawaywithmultiple
andhightaxationinthecountrybeforejumpingtoanewandincreased
structureoftaxationviaGST.Wearerunningtheriskofinstitutingahighly
misalignedtaxstructurewhichmayeventuallydemolishhopesofeaseof
doingbusiness,demandandinvestment.
#IndirectTax,#VAT,#GST,

Theviewsandopinionsexpressedinthisarticlearethoseoftheauthorsanddonotnecessarilyreflecttheofficial
policyorpositionofDailyO.inortheIndiaTodayGroup.Thewritersaresolelyresponsibleforanyclaimsarisingout
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Howmanymoretaxesdoweneedtopay?

ofthecontentsofthisarticle.

Writer
ANSHUMAN TIWARI @anshuman1tiwari
Editor, economic analyst, columnist, author

URLofthisarticle:
http://www.dailyo.in/business/gstvatindirecttaxesdirecttaxesservicetaxincometax
brentcrude/story/1/8152.html
@Copyright20142015IndiaTodayGroup.

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