ashok321
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NEW DELHI: Stop cribbing about GST making certain things more taxing.
The fact is, even today India’s cumulative tax mopup in percentage terms matches only those of the poorest African countries like Rwanda. That’s a sorry figure for a nation that aspires to be counted among the developed economies in the near future.
In fact, that’s the case for many Asian economies. Mitsuhiro Furusawa, Deputy Managing Director of the International Monetary Fund, recently warned that most Asian countries are not collecting enough tax to meet their goals.
India’s tax-to-GDP ratio is way below global standards. If the economy needs to accelerate growth by boosting infrastructure and investments, tax collection has to go up quite a bit.
“They need to boost revenue by taking steps at home and by working with other countries,” Furusawa said on Asian economies.
Post demonetisation, India added some 9.1 million people to the list of taxpayers, according to CRISIL. Economic survey 2016-17 revealed that India has only seven taxpayers for every 100 voters, which is very low compared with G-20 standards.
After GST roll out, tax avoidance is expected come down sharply and there would be a further expansion in the tax base, as only SMEs with sales of Rs 20 lakh will be exempt from the new tax regime.
Under GST “a ‘successor’ entity in the chain will not be able to claim (offset) taxes paid by it on procurement of goods and services from a ‘predecessor’ entity (take a credit of taxes on inputs, in other words) unless the ‘predecessor’ entity has made the payment in the first place,” said Kotak Securities in a note.
Tax revenues should see a significant increase as either there will be a successful migration from unorganised to organised sector or market share gain of larger units in the manufacturing sector from the multitudes of smaller players, the brokerage said.
“As the share of unorganised players in several sectors is quite large, there can be a meaningful increase of tax revenues as and when they become part of the formal economy,” it added.
At 16.6 per cent, India’s tax-to-GDP ratio is far less than 34.3 per cent average for the members of the OECD (Organisation for Economic Co-operation and Development), which counts US, UK, Australia, Canada, Japan, Germany, France among its 35 members, and below those for many emerging economies.
Comparable data for other global economies shows developed nations such as Denmark, France, Finland and Italy had tax-to-GDP as high as 40-45 per cent as of 2015. Asian economies such as Indonesia, Malaysia, Singapore and Philippines have tax revenue-to-GDP ratio between 10 per cent and 17 per cent. China's tax-to-GDP ratio is just above 20 per cent.
Furusawa believes the tax-to-GDP ratio ‘consistently’ falls below the 15 per cent ‘associated with a significant acceleration of growth and development.’
“The economic benefits of GST in the medium to long term would be from two major factors: (1) efficiency gains from a simpler tax system, more productive business operations, and creation of a one nation market for production and consumption, and higher government revenues due to expansion of the tax base as compliance increases and unorganised segment shifts to the organized segment,” Kotak report said.
Motilal Oswal Securities said the GST would be revenue accretive for the government, as the tax base will expand, even though tax rates on various products remain close to the current effective tax rates.
Under GST mechanism, efforts have been taken to reduce human interference and utilise technology which would not only help in decision making but also ease compliance and avoid any malpractice, Centrum Broking said in a note.
VAT or GST model has been implemented in around 160 countries so far. Malaysia’s rate stands at 6 per cent, Indonesia’s at 10 per cent, China’s at 17 per cent, while United Kingdom’s rate stands as high as 20 per cent.
