Strategic Tax System Reforms for India’s $5 Trillion Economy

India has an ambitious target of becoming a $5 trillion economy by 2025. However, the country’s current complex and inconsistent tax system poses significant challenges to achieving this goal.

India’s Goods and Services Tax (GST) regime demonstrates the problems. GST has multiple tax slabs and rates that vary by price thresholds and product types. GST rates can differ for similar products based on where they are purchased — like the example of popcorn taxed differently if bought with an online movie ticket versus at the theater.

The government has used GST rates to target sectors, Eg. applying a high 28% GST on the nascent online gaming industry. This risks “killing the hen that lays golden eggs” by stifling the growth of emerging industries.

To become a $5 trillion economy, India needs simple, predictable, and pro-growth tax policies that support businesses. The govt could consider the following:

• Simplifying GST rates with fewer slabs and standard rates applied evenly across sectors
• Lowering and stabilizing corporate tax rates to make India a competitive investment destination

Excessive taxation can discourage economic activity and growth while too little can hamper revenue collection. India must strike the right balance through appropriate tax system reforms.

I strongly believe that becoming a $5 trillion economy will require strategic tax system reforms. This includes simplifying the complex GST regime, rationalizing tax rates, and making them more predictable for businesses. Getting the tax system “just right” through thoughtful reforms will be critical to unleashing India’s economic potential and realizing its GDP ambition.