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Journalism of Courage
The Fiscal Responsibility and Budget Management FRBM Task Force proposals are creative and path-breaking. The recommendations for tax reform include rationalisation and simplification of direct and indirect taxes. Its radical proposals include a goods and services tax 8212; a single nation-wide VAT on goods and services that replaces central excise, service tax, state sales tax, octroi, stamp duties, etc., and is administered by one single IT system. This sounds like a dream to most Indians, accustomed to innumerable forms, multiple tax authorities and inefficiency and corruption at all levels. But will the UPA find the courage to implement the recommendations? If it does not, projections show that the non-interest expenditure of government will be squeezed out, falling by over 1 per cent of GDP over the period 8217;04-8217;05 to 8217;08-8217;09.
The reforms proposed are very challenging. The cooperation of states is essential. Opposition by chartered accountants and tax lawyers, whose jobs depend on complicated tax systems, could be bitter. The average person who stands to gain, may not have the clout to push in favour of reforms. But, despite the obvious criticism and lobbying that comes from losers every time, it makes sense for the Congress to take the plunge as early as possible. In Manmohan Singh8217;s last stint as finance minister there was a realisation that India had landed in a crisis in 8217;91 because of fiscal indiscipline in the previous decade. Singh had to focus on fiscal consolidation without a blueprint for tax reform. In the five-year period starting in 8217;92, non-interest expenditure of the central government went down by a dramatic 2.5 percentage points of GDP. This was acutely painful, politically speaking. If the reforms are taken up, the government can manage smoothly an increase in its non-interest expenditure by 1 per cent of GDP over the next four years.
