NEW DELHI: Speaking at a conference on sustainable finances and fiscal frameworks, India’s 15th Finance Commission chairman NK Singh said on Friday that the country’s tax revenue potential was currently lower by 4 per cent of GDP. The panel chairman added that the nation has to implement deep reforms in its revenue management system.
According to Singh, an incentive mechanism for states needs to be worked out to ensure that state-level policies are aligned to those of the central government.
Speaking at the CSEP-IMF event, Singh noted that there was a need to redo direct and indirect taxes, and bring about deep reforms.
“At least 4 per cent of GDP is a lost potential in terms of India’s revenue and if some part of it could be realised it would help greatly in aligning not only inevitable expenditure needs, pandemic needs, health needs, but find a convergence between sustainable development and medium-term fiscal policy statement...,” he said.
Also speaking at the event, former RBI Deputy Governor Rakesh Mohan pointed out that the tax potential lost, as described by the Finance Commission chairman was substantial: “That is a lot... that is about 25 per cent of the total taxes collected by the Centre and states”.
The 15th Finance Commission report, tabled in Parliament in February, had also said that actual tax collections by the Centre during the last ten years, on average, was 4 per cent less than what was budgeted. “The gap between revised estimates and actuals is by no means negligible. This prediction error leads to ad hoc expenditure management,” it had warned.