Completing Tax Reforms

Responding to slow growth, the government announced cuts in corporate taxes and the taxes for new manufacturing companies. This path-breaking reform will boost corporate profitability and improve the sentiment, which is a necessary condition for reversing the economic slowdown.

After the cuts, the Indian tax rate is now competitive with other economies including Vietnam, Singapore, Thailand and China. The timing of the move is excellent, given that many companies are looking to relocate their manufacturing base out of China in the wake of rising US-China trade tensions. The move can act as a big catalyst to attract fresh investments from foreign and domestic players over the medium term.

Is there a scope for relief on taxes on individuals now without bringing revenue under too much pressure? On the indirect taxes side, the Goods & Services Tax (GST) needs to become simpler, stable and predictable quickly. Its weaknesses are proving to be a drag on GDP growth, especially for the exports sector and the MSME segment. Plus, its collections are falling short of targets and potential. Perhaps a source of boosting revenue and making taxes more fair and efficient is the area of taxation of global companies in the digital space on which the OECD has proposed a major overhaul of the international tax system.

Key Issues:

  • What immediate corrections are needed in the GST rates and collection system?
  • Can GSTN based bill discounting be leveraged for better availability of credit?
  • How can digital MNCs be taxed more efficiently in India? Is the OECD model an option?