MAY 26, 2017

By TIOL Edit Team

NITI Aayog has injected freshness in the evergreen arena of taxation reforms and other governance reforms. In its draft three Year Action Agenda, 2017-18 to 2019-20, NITI has proposed unification of all import duties at 7%.

NITI believes that 7% rate (to the extent feasible without violating commitments given to WTO) would lead to substantial rise in revenue. It would also put an end to chronic problem of inverted duty structure.

To this we can add the benefit of giving a huge boost to #MakeInIndia initiative, if 7% is weaved in existing free trade agreements (FTA) and similar such bilateral multilateral arrangements.

As many building blocks in chemicals sector currently attract zero or less than 7% import duty, the implementation of suggestion would give leg-up to domestic value chain of chemicals & certain other sectors.

We hope the Government would take time-bound call on this and other tax reforms proposed in the 3yr action agenda, which marks a break from the five-year planning process. The Government should also prepare road-map for phased reduction in goods and service tax (GST) rates as pitched for by NITI.

Similarly, its suggestion for preferential treatment to labour-intensive tourism sector deserves affirmative action.

As put by NITI, "tax reforms will be necessary to reduce barriers to trade and tourism. The smooth implementation of the Goods and Services Tax (GST) and related reforms will help facilitate travel and tourism. We should consider placing tourism in the lower tax bracket of the GST to ensure competitiveness with foreign destinations. In addition to the successful rollout of the GST, we should help streamline taxes specific to the tourism sector. This will also improve the ease of doing business and attract investment into the sector."

The States Governments should pay heed to NITI's suggestion to standardize stamp duty inclusive of registration fee on property to 3-3.5% to minimize duty evasion and black money generation. Certain States currently charge stamp duty at 7% of the property value.

On the direct taxes side, NITI has rightly voiced concern over structural flaws. It says that tax system is not equitable horizontally as the differential in effective tax rates across sectors is very high.

We can interpret this as a call for creating a level playing field for capital investment flows in different sectors.It has similarly pointed out vertical inequity in corporate tax rates.

While striking the familiar chord for phasing out all corporate tax exemptions, it has advocated reduction in corporate tax rate to 25% inclusive of surcharges and cess from the present 34%.

NITI's tax reforms proposals for un-incorporated bodies, mutual funds and pension funds also merit attention and action. Equally important are its proposals to reduce tax disputes and undertake other tax administration reforms.

The scope for interpretation of tax laws and resulting disputes should be minimized by precise writing of rules that specify detailed tax liability under different situations. NITI has thus aptly called for implementation of recommendations of Easwar Committee in this sphere.

It has also drawn Government's attention to Tax Administration Reforms Commission (TARC) recommendation to create separate disputes management verticals in both Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC).

NITI deserves complement for pitching for new initiatives to expedite customs clearances of both imports and exports. Such efforts are needed to reduce transactions cost and improve ease of doing business.

As put by 3yr Action Agenda, "A single-window for customs clearance (SWIFT) needs to be extended to all partner government agencies….Moreover, we need to introduce SWIFT for export clearances. For efficient operations, every port should have container scanners…."

It has also called for revamp of duty drawback procedures to ease the woes of exporters.

The 3yr Action Agenda would be followed by 7-yr Strategy and 15-yr Vision, both of which are in works. NITI has worked on these three valuable documents following a specific advice from Prime Minister's Office (PMO) in May 2016.

It is now the duty of PMO and Cabinet Secretariat to facilitate speedy decisions by the Cabinet on NITI's different recommendations.

We hope the Government would not be found wanting in taking action on Action Agenda.