The Economic Survey: Enact Goods and Services Tax, Direct tax Code immediately

New Delhi: Suggesting simplification of complex tax structure in the country the Economic Survey for the year 2013-14, which was presented in Parliament on Wednesday, suggested that it needed a complete overhaul by bringing in laws including Goods and Services Tax (GST) and Direct tax Code (DTC).

It also recommended weeding out of “bad taxes” like surcharges, cess and dividend distribution levy to boost investments as well as GDP growth. The Survey said the tax/GDP ratio of the government must be obtained through a burden-sharing mechanism where “low rates apply on a broad swathe of the population” through effective enforcement mechanisms.

It also argued that the taxes clarified, as “bad” in public finance theory, like cesses, surcharges, transaction taxes, and taxes imposed for ease of collection such as the dividend distribution tax need to be eventually weeded out. Reducing tax related distortions could increase efficiency and fuel GDP growth, it added.

The Survey pointed out that India’s complex tax system suffers from problems in both structures and administration and the tax regime is used to industrial policy where the state gives exemptions and rebates to certain economic activity.

Referring to the GST, the survey said there is consensus that the GST will be a major milestone for indirect tax reform in India. Just as the GST is a transformation of indirect taxes, it said, the DTC is required as a clean modern replacement for the existing income tax law. The key objective must be a simplification with a clean conceptual core, and the removal of special cesses and exemptions.