Calling for acceleration of fiscal reforms to overcome profoundly difficult economic challenges, 13th Finance Commission Chairman Vijay Kelkar today said the goods and services tax (GST) to be implemented from next year will be an attractive policy option.
Delivering the sixth Convocation Address at the Indira Gandhi Institute of Development Research Acceleration (IGIDR), Dr Kelkar said ''even as the storm clouds of recession gather there was potential for carrying forward the reform process to improve the economic fortunes of India.'' He said ''the present economic crisis portends a huge challenge, the 'only gain without pain' would come if the efficiency of the economy is improved and thereby the productivity and international competitiveness.
On GST, he commended the task carried out by the empowered committee of finance ministers for their contribution towards strengthening the federal system.
While finalising the design of the GST in the coming months, he hoped, that they would ensure minimum number of rates and miimum exemptions so as to achieve widest possible tax base and remove distorting state tax rates such as entry tax, octroi and high stamp duties by subsuming them in the GST.
This, he said would help to acheive reasonably low GST rates ensuring nationwide acceptability, high compliance and revenue gains to all members of the federation, implying the Central, state and local governments.
He said preliminary research indicated that the effective revenue neutral rate at which GSt could be implemented would be far lower than 30 per cent, indicating a significant reduction in the effective tax buden on economic agents.
''Consequent to alignment with the lower effective rate, we can also expect an upsurge in compliance as has been witnessed in the case of direct taxes'' he added.
He said GST would also create a common market across the length and breadth of the country, something which had eluded the country this long.
Dr Kelkar said by sharing the GST, the finances of the three tier of government could be significantly strengthened which would make cities and towns a much better places to live, work and enjoy.