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Indirect taxes must equal direct taxes
June, 22nd 2017

“Out of the total taxes collected in the country, 65% is collected as indirect taxes and only 35% are direct taxes. This ratio is completely opposite to the taxation in developed world . We need to fix this ratio and try to make it at least equal,” said Ajit Ranade, chief economist, Aditya Birla Group.

Speaking at the Observer Research Foundation, Ranade said that GST is a massive indirect tax. With GST, the entire country is moving from production based tax system to a consumption based tax system.

“It will avoid cascading of tax and interlink incentives as it will be online and in turn move up tax collection. It is the true spirit of cooperative federalism and has great potential to boost the country’s GDP or national income,” he said.

Explaining that direct taxes like income tax are proportional to income and inherently come out of a person’s income, he said indirect taxes are inherently regressive, unfair and unjust. The pinch of indirect tax is higher for relatively poor people, he added.

“Bringing about a reform in indirect taxation system is only half job done,” said Ranade.

He said that scaling down of 1800 indirect tax slabs to six - 0 percent, 5 percent, 12 percent, 18 percent, 28 percent and 43 percent was a huge progress. “According to me, it should have had only two 5 percent and 12 percent as originally suggested by the Kelkar committee.”

Ranade added that Rs 5 lakh crore are locked in tax disputes in India and a lower GST rate would have led to tax buoyancy. “The real punch in this tax reform will only come with a more comprehensive tax system,” he said.

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