‘Need for tax treatment that is accepted globally as reasonable’

Deputy Chairman of Planning Commission Montek Singh Ahluwalia on Thursday said implementation of the Goods and Services Tax (GST) will be the best signal to tell investors globally that “India is open for business.”

Stating that he endorsed the view of the GST being the “single most important tax reform that we have to do,” Mr..Ahluwalia said reducing customs duty to rates prevalent in East Asian countries was another important requirement in a globalised economic environment. He was delivering the Dr. Raja J.Chelliah memorial lecture, organised here by the Southern India Chamber of Commerce & Industry (SICCI) and the Madras School of Economics (MSE).

While most of the political parties have come together on the issue of the GST roll-out, there is need for more negotiations, particularly with regard to the impact on the States. Considering the time left with the present government at the Centre and a Constitutional amendment required for implementation, the GST issue would be going to the next government, he said.

On the customs duty, Mr.Ahluwalia said since the time it was announced that the rates would be brought down to the levels prevalent in East Asian countries in early 1990s, the duty had been lowered substantially. “Over the last 20 years that has been a major factor in increasing efficiencies in the country,” he said, adding Indian industry was not left in the lurch as the reduction in duty was offset by the exchange rate adjustment.

Globally, countries were moving away from customs duty “because the essence of globalisation is that you don’t impose too many taxes on trade. [Instead] You raise the same revenue from domestic taxes,” he said. With the country entering into FTA with the Association of Southeast Asian Nations (ASEAN) and having similar arrangement with South Korea and Japan, the need was for reducing the duty further.

Noting that globalisation was a reality, Mr.Ahluwalia said the need was tax treatment that is accepted globally as reasonable. This would instil confidence in the investors, he said, adding “it was very important that the tax system, tax regulation, our method of calculation is as much aligned globally as possible.” Globalisation also meant public investment must go into high quality infrastructure. For this, the government needed more money and reducing fiscal deficit, increasing the tax revenue and trimming subsidies were needed.

Chairman of MSE and Economic Advisory Council of the Prime Minister, C.Rangarajan, in his presidential address, said Dr.Chelliah was an institution builder and the MSE was established by him. With demands on public expenditure increasing, particularly on primary health and education, the need was raise the tax-GDP ratio for the government to meet the expenditure. But it should be raised in a way that it did not affect growth, he added.

SICCI president Jawahar Vadivelu and MSE director K.R. Shanmugam spoke.