Welcome to MIDS - A National Institute for Social Science Research



Public Lecture by Prof. Parthasarathi Shome at Madras Institute of Development Studies, Chennai

Prof. Parthasarathi Shome, Visiting Fellow at MIDS, spoke on the topic “India's Taxation Trends and Countdown to GST” on August 24, 2016, to a large gathering at the public lecture held at the Adiseshiah Auditorium, MIDS.

Prof. C. Rangarajan, Chairman, Madras School of Economics, and former Governor of Reserve Bank of India, chaired the proceedings.

Prof. Shashanka Bhide, Director, Madras Institute of Development Studies, welcomed the Speaker, the Chair and the invited guests to the lecture and introduced the speaker to the audience. The lecture was attended by faculty and students of research and educational institutions in the city, other professionals, general public and the press.

Summary of the Lecture

It has taken a decade for the Centre and the states to arrive at an understanding on a Constitutional Amendment on tax reassignment and on revenue sharing on the basis of which a comprehensive system of consumption taxation would be designed for the federal fiscal system in India. Thus various components of indirect taxes on production and consumption at the central, state, and local levels will be consolidated to construct an all-inclusive tax on goods and services at all levels of government. It will incorporate input tax credit (ITC),which forms an essential element of a value-added based tax such as the GST. Tax on inter-state trade without input tax credit will be abolished, thus creating a common market across India.

However, severe design faults remain that would continue to comprise a challenge for businesses. This is because important raw material inputs—perhaps the most glaring being petroleum and electricity duty—used in the production-distribution chain will remain outside the GST base. This will imply any tax paid in other forms than GST on such inputs will not receive ITC. Hence those taxes will get embedded in the value of the products that use those inputs, thus generating multi-stage cascading of indirect tax. Commensurately, GST administration is also appearing to continue with several prevailing practices, thus remaining relatively complicated. Only actual experience in the field including simplification of GST administration will reveal the ramifications of the new GST on businesses and, accordingly, on GDP growth.

Profile of the Speaker

Parthasarathi Shome, who was Adviser (at level of Minister of State) to the Indian Finance Minister in 2013, began his professional career in academia, rising to Professor of Economics at American University, Washington DC (1975–83).  He worked at the IMF (1983–2004), where he held various positions, including Chief of Tax Policy (1992–95) and Director, IMF Singapore Institute (2001–03).

He has provided fiscal technical assistance to over 30 countries in Africa, Asia, Europe and Latin America.  He chaired India’s Ninth and Tenth Five-year Plan Advisory Groups on Tax Policy and Administration, and was Director, National Institute of Public Finance and Policy, New Delhi (1995-97).  His books have been published by leading publishers and his articles appear in leading journals.

Press coverage