FY22 Budget should prioritise tax reforms: Arvind Virmani, former Chief Economic Advisor

NEW DELHI: The government’s priority must be to reform India’s tax system in the upcoming Union Budget 2021-22, and specifically to update the direct tax code, according to Arvind Virmani, former Chief Economic Advisor of India.

“The most important issue is tax reforms and the first element of that is the direct tax code. We cannot create a 21st century Atmanirbhar Bharat with these ancient codes and we need to bring it up to the 21st century,” Virmani said, virtually addressing a conference hosted by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) on Friday.

On the indirect tax side, noting that it was not for the Centre alone but for the Goods and Services Tax (GST) council to take action, Virmani said that GST structure needed to be further simplified.


“The central government cannot announce reforms by itself but it can certainly make a recommendation and the key here is that 75% of the goods and services should have a uniform 15% tax rate,” he said.

Inclusive growth
Radhika Rao, India economist at DBS bank, who also spoke at the event, pushed for the budget to ensure inclusive growth in the coming fiscal as against the “asynchronous” growth experienced so far.

“It (growth) is largely driven by profits and margins, not so much wages and labour. The budget has to have something to support incomes and wages,” Rao said.

This could come through higher allocations to the rural employment guarantee scheme or an expanded credit guarantee facility, Rao added.

Import tariffs
Rao called for alignment between India’s trade and investment policy. “There has been a strong emphasis on import tariffs in recent budgets and there seem to be indications that more is likely to come. We should recall that import tariffs in effect become export taxes as well,” she said.

According to Virmani, import tariffs needed to be selectively applied in a phased manner to enable minimum efficient scale in niche markets where India’s exports were competitive.

“We need to have more selective and phased higher tariffs on labour intensive goods which have been monopolised by China,” Virmani said.