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GST not to be a cakewalk, admits Pranab
May, 19th 2010

Finance minister Pranab Mukherjee made some candid confession on Tuesday when he said that implementing the indirect tax reformGoods and Services Tax (GST) may not be a cakewalk for him vis--vis the other tax reform, Direct Tax Code (DTC).

At the same time he exuded confidence that the two tax reforms, would boost the tax-GDP ratio in India to a whopping 15% in the next three years from the current 11% level.

For DTC, I am the master, you may blame me, you may accuse me, I am to share it. But GST, 28 masters, so I shall have to keep all 28 masters with me, Mukherjee said at the Idea Exchange programme organised by The Indian Express on Tuesday.

While the DTC will replace the age-old Income Tax Act, 1961, GST would replace the plethora of indirect taxes levied by the Centre and the states.

The minister also indicated the threshold for levy of GST would be common for the States and the Centre and their tax rates would be low but without exemptions. What I am emphasising on is you have the common threshold level, you have the common and uniform rates. The aggregate impact of taxes should be less because these principles are to be followed.

If the rate of taxes is less, compliance is better and you have minimum exemptions, he said. He further added that removing exemptions, reduction in rates and expansion of horizontal tax base instead of vertical, would get more revenue. You are concerned with the net revenue, not of the rates, said Mukherjee.

The rising tax buoyancy and reduction in subsidies will help the government pare its fiscal deficit. Mukherjee said the government need to compress oil subsidy, though continuing the food subsidy. Explaining his calculations on how to reach the right fiscal consolidation mark, he said that he has taken into account Rs 1 lakh crore of subsidies including a fertiliser subsidy at Rs 42,000 crore.

To sum it up, if the food, interest subvention and subsidies all taken together would be maintained at about Rs 1.06 lakh crore, it could be possible to have the fiscal deficit at 5.5%, he said. However, on oil subsidy, he said he expected some this year. Moreover, the subsidy could be in a way which people understand and not bonds. I shall have to live within my means and I will cut my coat according to the size of the cloth. This is the basic principle that means I will not allow the fiscal deficit to move beyond a tolerable level.

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