In the most highly polled elections of all times, Indian's have voted decisively for a Modi Government in Delhi. Hopes were raised all around anticipating a Modi Government and the Indian markets reflected this excitement with over a 20% rise and a record even as the elections were in progress.
Reports indicate that Mr Narendra Modi may prefer Mr Arun Jaitley as the next Finance Minister. While these big changes are being sorted, the questions that arise are, what are the first big steps we can expect from the new PM and his FM? What does "Minimum Government, Maximum Governance" mean for taxation? Does it mean major and quick steps towards tax reforms?
The expression "tax reforms" over time has mostly come to mean big bang changes like GST, DTC etc. Undeniably, these are critical for the Indian economy. Reports confirm that GST if implemented as originally envisaged, will boost the GDP by over 1%! GST as it will eliminate the several prickly issues of overlapping and cascading indirect taxes and credit loss due to break in the VAT chain. Most of all, this will not only benefit the consumer as tax inefficiencies will get reduced but will also improve tax collections. So going by the assurances during elections we should expect the new FM to initiate steps towards these big changes immediately.
However, tax reforms cannot be limited to only the big bang changes like DTC and GST. A businessman today faces a lot more tax related difficulties from the Government and how taxes are administered. It is not just about the design of the taxing system which economists would like to do.There is a crying need for reforms in tax administration. Some of the steps which are essential are :
- introduce steps to reduce existing litigation and also prevent fresh ones;
- introduce a more co-operative and less adversarial approach
- under the guise of judicial independence, judicial discipline should not by-passed. Steps should be taken to enforce this.
- set standards by way of time limits for granting clearances wherever approval, permissions, or discretion can be exercised. Delays in clearances should be prevented as they block business processes adding to cost of Indian goods and services.
In short, while the big bang changes occupy much of the mind space of tax authorities and professionals. A host of changes in the realm of tax administration and tax litigation are urgently required. These changes will help the Indian tax environment reach the tipping point to make it more cleaner, tax payer friendly, cooperative, less adversarial. It is no one’s case that taxes should not be collected. But certainly, there is great scope for improvement in the administration without losing out on collection.