Monday, 30th October 2017

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Call to end exemptions

GST has been 'revenue-negative' instead of 'revenue-neutral': Bibek Debroy

By A Staff Reporter in Calcutta
  • Published 21.09.19, 1:46 AM
  • Updated 21.09.19, 1:46 AM
  • a min read
Bibek Debroy in Calcutta on Friday.

Corporates should not always wish for exemptions under a simplified direct tax structure, according to Bibek Debroy, chairman of the Prime Minister’s Economic Advisory Council.

His views came on a day finance minister Nirmala Sitharaman gave companies the option of a lower tax rate of 22 per cent compared with 30 per cent earlier, subject to the condition that they will not get any exemption or incentives.

“All of us want rates to come down but we are not willing to let go of our exemptions,” Debroy said at a CII event on Friday.

“Unfortunately, the typical attitude for most of the industry is remove the exemptions for others but retain the exemptions for me. The task force on direct taxes has submitted its recommendations. But substantively for it to be a simplified structure, we need to agree as an entity on the removal of exemptions,” he added.

With the government losing on revenue collection under the goods and services tax regime, Debroy also said that the GST has been “revenue-negative” instead of “revenue-neutral”.

“On GST, there is an argument that is being put by a lot of people that 28 per cent should be reduced. Ideally, GST should have been revenue-neutral. In other words, the average GST rate should have been the average tax rates that used to exist before GST. The revenue-neutral GST rate would probably have been somewhere around 17-18 per cent. The average GST rate today is probably around 14 per cent. This means GST has not been revenue-neutral. It has been revenue-negative,” he said.

“When I expect the 28 per cent rate to come down, if the GST structure should be simpler and standardised, I should also expect that the zero per cent rate should go up,” he said, adding that pressure from the states to the GST Council makes it difficult.

According to Debroy, it would be incorrect to conclude that the country is on a 5-per cent growth trajectory on the basis of just one quarter’s numbers. The GDP growth in the April-June quarter of the 2019-20 fiscal was 5 per cent, according to government data.

“One quarter of 5 per cent does not mean we are on a 5-per cent growth trajectory,” Debroy said, adding that there have been instances in the past when the GDP growth rate had fallen in a quarter only to recover in the very next quarter.