Direct taxes must be reformed to simplify them and remove their exemptions, Bibek Debroy, chairman of the Economic Advisory Council (EAC) to the Prime Minister, told a media event.
He pointed out that when the Goods and Services Tax (GST) regime was introduced, the revenue-neutral rate was to be 18%. Almost five years later, the rate is only 11.5%, which is not sustainable.
The revenue-neutral rate is the tax rate that allows the government to continue to collect the same tax revenue despite a change in existing tax laws.
“We must talk about tax reform, a simplified code of direct taxes, the abolition of exemptions and also the tax on goods and services. It’s not just about bringing more goods and services under the GST. It’s also about the GST rate,” Debroy said in a virtual address during Mint’s “budget conversations.”
Debroy also pointed to areas of concern in the economy, including the labor market. Although cheap and plentiful, the Indian labor market suffered from problems such as lack of regulation in the informal sectors, lack of skills, poor translation of education into actual skills, and lack of uniformity in the labor code, he said.
“Growth has picked up but there are still concerns about the labor market, especially the urban labor market, and I also have in mind the decline in labor participation rates,” Debroy said.
While the central government recently unified 50 labor codes, several others still remain outside the new consolidated regime of the four chiefs of wages, social security, safety and industrial relations.
(Edited by : Kanishka Sarkar)