The introduction of Goods and Services Tax (GST) has reduced the complexity of Indian tax regime, but the country is perceived to the second most complex (when it comes to tax administration) in the Asia-Pacific region, states a recently released report of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
Stating that tax rates by themselves do not explain the fundamental sources of the diversity of tax systems, it wants specific country circumstances also to be considered while measuring the complexity of a tax system.
The annual Economic and Social Survey of Asia and the Pacific quotes global consultancy Deloitte to suggest that well over half of private sector companies in India believe that complexity in the tax regime has increased in the last three years - "complexity" referring to the perceived level of difficulty in interpreting the tax law and rules in the relevant jurisdictions.
"To the extent that generalizations can be made about the tax systems in South and South-West Asia, it may be said that they are complex, inefficient and not very conducive to the collection of large tax volumes. For example, India has a tax administration index of 58.4 per cent, which is below the average index for the entire Asia-Pacific region at 60.3 per cent," the ESCAP report says.
According to the report, the highly decentralized structures of countries in the sub-region can aggravate complexity in the tax system. "Sub-national public expenditures are one third greater than sub-national public revenues in Bangladesh. They are twice as large in India and more than six times as large in Pakistan".
Terming that inefficiency in the tax system does not favour inclusion, and lowers tax morale, the report says that financial contributions by people and businesses to their Government depend on the perception of the public goods and services received, such as education, health care, basic utilities or responsive government administration. "In most countries and sectors in the sub-region, this social contract is broken. The result can be a vicious cycle of tax avoidance which hampers financing decent public goods and government services, and subsequent low-quality, exclusionary service delivery".
Launched at an event organized jointly by the New Delhi-based ESCAP South and South-West Asia Office and the Indian Council for Research on International Economic Relations (ICRIER), the report forecasts economic growth to moderate to 6 per cent in 2018 in South and South-West Asia (from 6.4 per cent in 2017), before picking up to 6.2 per cent in 2019.
A gradual recovery is foreseen in India, according to the report; with private investment being expected to revive as the corporate sector adjusts to GST, infrastructure spending and corporate and bank balance sheets improving with government support.
"Sustained and inclusive growth, and improved well-being in the Asia-Pacific region require concerted efforts to mobilize financial resources for development and dedicated steps to mainstream resource efficiency, social protection and environmental considerations into policymaking," said Rupa Chanda, Head, ESCAP South and South-West Asia Office, presenting the report's key findings.
The Economic and Social Survey of Asia and the Pacific is a flagship publication of the United Nations Economic and Social Commission for Asia and the Pacific. Every year, it discusses regional economic progress, provides cutting-edge analysis and guides policy discussion on current and emerging economic and social development issues to support sustained, inclusive and sustainable economic growth.