Making a strong case for elimination of tax exemptions, Prime Minister's Economic Advisory Council chairman Bibek Debroy has said that exemptions are restricting the tax-to-GDP ratio from rising and compliance costs to come down and if such exemptions are eliminated, the tax-to-GDP ratio of the country can increase to 22 per cent.
He further pointed that the total amount of revenue foregone (on account of tax exemptions) is a little over 5% the GDP. Further adding that there is a tendency to interpret tax avoidance as tax evasion, while tax evasion is illegal, tax avoidance is perfectly legitimate because it arrays of exemptions that are allowed.
Debroy blamed Indian industry for the inclusion of exemptions in the first place and expressed his hopes that that the government panel tasked with reviewing the Income Tax Act will look into the issue of exemptions. He also pointed that the Goods and Services Tax (GST) is not perfect as it has multiple tax rates structure and also includes exemptions, but stressed that the new tax reform is a step in the right direction. On the development front, Bibek Debroy said that there are a slew of areas where the changes in social infrastructure are visible like with financial inclusion and expressed need to focus on skills of country immediately.