ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Articles by M Govinda RaoSubscribe to M Govinda Rao

Goods and Services Tax: A Gorilla, Chimpanzee or a Genus Like 'Primates'?

Introduction of goods and services tax in India will be a win-win strategy for both the centre and the states and there is every reason to embrace it. However, reform of this nature involving both the centre and the states is an experiment in cooperative federalism and requires stewardship by statesmen. Resumption of GST reform requires greater recognition of and sensitivity to the views of the states. The IMF-type "one size fi ts all" reform, as has been recommended by the Thirteenth Finance Commission, could simply stall the process. At the same time, while it is legitimate for the states to bargain to retain their fi scal autonomy, they should not use this autonomy to indulge in predatory competition and export the tax burden to non-residents.

The 13th Finance Commission's Report: Conundrum in Conditionalities

Critically appraising the recommendations of the Thirteenth Finance Commission, this paper points out that despite some tinkering with one of the indicators, its approach to tax devolution suffers from the same limitations as those of earlier commissions. More alarmingly, the inability to offset the fiscal disabilities of the states has led it to recommend as many as 12 different types of grants with a host of conditionalities. There are serious questions over the design and implementation of these conditions, in addition to monitoring compliance. Besides, the commission's recommendations on the goods and services tax have been resented by the states and this has actually taken the reform agenda backwards. All this lends weight to the suspicion that yet another opportunity to reform the transfer system has been lost.

Goods and Services Tax: Some Progress towards Clarity

The first discussion paper on Goods and Services Tax released by the Empowered Committee is an important step in signalling the consensus and commitment to harmonise the indirect taxes levied by the states and the centre and in traversing some distance in clarifying the design and implementation aspects of the new tax regime. The efforts of the EC must be complimented for building a consensus on many a contentious issue in the process of evolving the GST in the country. However, much more remains to be done, many of the design and implementation issues are yet to be negotiated and settled and it would take considerable time and effort before they are finalised.

Direct Taxes Code: Need for Greater Reflection

A new tax code that overhauls the complexities that have emerged in the Income Tax Act of 1961 has been long overdue. The draft Direct Taxes Code put out by the Finance Ministry for discussion and comment does just that in a number of areas. At the same time questions must be posed of the sweeping reduction in rates and restructuring of slabs in income tax, which are likely to rob the exchequer of a significant amount of income. Questions must also be asked of the proposed taxation of not-for-profit organisations.

Fiscal Space for Achieving the Millennium Development Goals and Implementing the Tenth Plan in Bhutan

The paper addresses the issue of financing the achievement of the Millennium Development Goals in a sustainable manner in a small, low income and landlocked country, the example being Bhutan. The analysis shows that although mdg financing is nested within the plan outlay, significant efforts will be needed to ensure adequate resources for financing the plan and smoothening the wide year-to-year fluctuations in revenues and expenditure flows. The paper explores the availability of additional fiscal space using the fiscal diamond framework to identify policy and institutional reforms needed for raising revenues from tax and non-tax sources, improving productivity from public spending through reprioritisation, accessing external grants and borrowing from domestic and foreign sources.

Feasibility of Introducing GST in April 2010

April 2010 was the target date set three years ago for introduction of the Goods and Services Tax, but the economy is far from ready for the switch over. This article cautions against hasty implementation and lists the measures that need to be taken by the centre and the states in order to reap the benefits of the new indirect tax.

The Fiscal Situation and a Reform Agenda for the New Government

The fiscal situation of the central government is worrisome. The problem is largely structural and not cyclical. Indeed, the slowdown of the economy has only partly contributed to the deterioration in 2008-09. The new government at the centre is faced with the formidable challenge of containing the worrisome fiscal deficit, while continuing to provide a stimulus necessary to revive the economy. It also has to institute a restructuring programme towards achieving fiscal consolidation in the medium term. Such a programme should draw lessons from the past and design a plan for the centre as well as the states.

Issues before the Thirteenth Finance Commission

The Thirteenth Finance Commission faces a challenging task. Despite an improvement in recent years, the fiscal situation continues to be a matter of concern when off-budget liabilities and other fiscal risks are considered. With rising oil prices on the one hand and a surge in capital flows on the other, calibrating the transfer system in tune with counter-cyclical fiscal policy stance is a formidable challenge. This paper argues that irrespective of the wording of the terms of reference, the Commission would do well to focus on its primary task of recommending transfers to serve the objective of equity and incentives. While it is required to take into account a number of considerations, the focus should be on the transfer system. As an impartial body, the Commission should make a fair assessment of the central as well as state governments, ignoring the asymmetries in the wording of the TOR. As regards the transfer system itself is concerned, the paper argues that although it may be difficult to make drastic changes in the relative shares of the states, the Commission should give up the gap filling approach. Instead, after recommending tax devolution, the Commission should recommend grants to fully equalise expenditures on elementary education and basic healthcare. It is also possible to incentivise the transfer system for even those states that have a better record of providing education and healthcare to improve the quality of these services.

Amaresh Bagchi: Public Finance Economist Par Excellence

A tribute to Amaresh Bagchi, a discussion of his academic career, his many interests in public finance and federalism, and an outline of his important contributions in policy formulation by a friend and colleague of many years

Expanding the Resource Base of Panchayats: Augmenting Own Revenues

Fiscal decentralisation to rural local governments in India is meaningful only when the panchayats have adequate untied funds to provide public services assigned to them which require the assignment of tax powers. This paper shows that revenue mobilisation by rural local bodies is abysmally low. The assignment does not include any important revenue handles and the panchayats are not able to exploit properly even the only notable tax base assigned to them - the property tax. The paper argues that it is necessary to take a re-look at the tax powers of panchayats. It is also important to build administrative and enforcement capacity. An essential precondition for building such capacity is to create a reliable data and information system.

Fiscal Adjustment: Rhetoric and Reality

article examines the fiscal adjustment that the Union Budget 2007-08 aims at. It also looks at how the growth momentum of the economy can be maintained by, among other things, easing infrastructure bottlenecks and reviving a sagging agricultural sector. After examining the tax revenue trends in the economy, the article comments on the tax measures proposed in the budget.

Balancing Stability, Equity and Efficiency

The prevailing fiscal environment is demanding and much was expected of the Twelfth Finance Commission's award in not only ensuring a fair share of resources between the centre and states and among the states inter se, but also in altering the incentive structure to promote fiscal discipline. Like its predecessors, the TFC did not make any drastic changes in total statutory transfers and worked around tax devolution and grants so that the centre's outgo was not substantially increased and equalisation was broadly similar to the past. Although the forecast of revenues and non-plan revenue expenditure has been seasoned with some norms, the incentive structure of the main recommendations remains unaltered. It is not certain whether they would be strong enough to induce the states to reduce revenue deficits.

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