According to the Economic Survey for 2013-14, there is consensus that the Goods and Services Tax (GST) will be a major milestone for indirect tax reform in India.

"Replacing all existing indirect taxes by the GST will create a national market, eliminate cascading taxes, and align taxation of imports and exports correctly," the survey said.

"This will improve the competitiveness of production and export from India. The implementation of a Central GST (CenGST) could be the first step towards the GST. Once the CenGST is implemented, and the information technology system for CenGST has worked, estimation risk will be lower and it will be easier for the centre and states to move to the GST," the survey advocated.

In a non-market economy, in addition to laws, taxes and subsidies are used for encouraging or discouraging activities that the central planner considers good for the economy.

"India's complex tax system suffers from problems in both structures and administration. Uneven and high tax rates and uneven tax treatment of similar economic activities have induced distortions in the behaviour of firms and households.

"Tax reform in India can improve the ease of doing business and promote efficiency and productivity growth," the survey said.

The survey also said that the Direct Tax Code (DTC) is required as a clean modern replacement for existing laws.

"Just as the GST is a transformation of indirect taxes, the DTC is required as a clean modern replacement for the existing income tax law," the survey said.

"As with the GST, the key objective must be a simplification with a clean conceptual core, and the removal of a large number of special cesses and exemptions that favour special interest groups. The tax system must move away from industrial policy, with incentives for one activity or another, towards a simple framework," it said.

"As with the GST, the DTC will yield gains by removing distortions of individual and corporate decision making, reducing compliance cost and litigation, and improving tax collections," the survey added.