Simplified Tax Regime to Help Revive Double Digit Growth in Collections

Published: 08th December 2015 03:42 AM  |   Last Updated: 08th December 2015 03:42 AM   |  A+A-

CHENNAI: The proposed GST Bill, whenever implemented, is expected to widen the tax base and increase the indirect tax revenue for the government.

Currently, direct taxes - like income tax, corporate tax, service tax - comprise 54 per cent of the total tax revenue, while the rest comes from indirect taxes like excise and customs duties.

“GST will certainly widen the tax base, as the multiplicity of taxation gets replaced with a simplified tax regime. Currently, for inter-state trade, the tax structure is complex and to avoid it, traders under invoice their orders to save on tax payments. With a unified structure, the number of taxpayers will increase,” Amit Kumar Sarkar, Partner, Grant Thornton India LLP told Express.

As per Budget Estimate (BE) for Assessment Year (AY) 2015-16, the overall tax revenue is expected to grow at a dismal 1.2%, largely on account of the sharp step up in devolution of central taxes to states, to 42% for the period between 2015-16 and 2019-20, following the recommendations of the 14th Finance Commission, AY from 32% over the 13th Finance Commission’s award period.


Within the country’s overall revenue, tax revenue comprises a lions share at over 80%. But annual growth in total revenue collections (include non-tax) hasn’t been steady. For instance, if in AY07, and AY08 it grew 25 and 24% respectively, the subsequent period AY09 witnessed a de-growth of -0.29 per cent. From there, it grew in single digits at 6 per cent during 2009-10. Though collections bounced back with a healthy 37 per cent growth in AY11, the following year they stood negative at -5 per cent.

Lower revenue prevents the government from spending liberally on growth projects, drags the country’s credit ratings (currently, just a step away from being given ‘junk’ status), forcing foreign investors to shy away from investing, could lead to appreciation in local currency and finally curtail growth.

“It’s rare to see a recommendation that’s widely accepted by industry and tax experts. It’s now expected that the same reasonableness and pragmatism is displayed by the policymakers in finalising the GST rate structure for introducing GST in the country,” Amit said.


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