As part of its pre-budget wish list, the Union commerce ministry has asked for the introduction of a new levy on imports. Dubbed the Border Adjustment Tax (BAT), it is meant to act mainly as a booster for domestic companies whose competitiveness is hindered by a badly designed GST. The source of the problem is that GST’s coverage is patchy. Important items in the production process are left out which means that companies have to bear an additional tax burden. Over and above that, the Centre has begun to levy different kinds of cess outside the GST which also undermine competitiveness.
The solution to this problem is not one more levy which can perversely end up hurting exports — export competitiveness depends critically on imported inputs. The answer lies in reforming the existing the GST architecture which is characterized by multiple exemptions. One of the factors undermining India’s competitiveness is an ad hoc approach to tax architecture. Governments prioritise immediate revenue needs over the long-term benefits to the economy. Consequently, a mish mash of taxes are grafted on to the existing GST structure.
The Centre should avoid a new import levy. Instead, it should take the lead in persuading states to help reform the existing GST architecture. As a sign of its sincerity, it should avoid raising taxes through the introduction of any cess as revenue sourced from it is not shared with states. India’s indirect tax architecture reform needs a grand bargain between the Centre and states.
Source: timesofindia.indiatimes.com