The government is reportedly planning to cut peak customs tariff from the present 12.5% to a possible 10% in the upcoming budget but senior functionaries are reportedly interested to drop the tariff to ASEAN levels of 6-7%. If these changes are to be instituted, the average rate may be in the 3-4% range. In addition, numerous exceptions and sops are expected in the budget to accommodate the Special Economic Zone (SEZ), ultra mega project, and other so-called special projects that are clamoring for tax cuts.
With the average tax to gross domestic product (GDP) ration only at 10%, the government needs to look at increasing enforcement and measures to further its tax base but without adversely affecting economic activity. Taking advantage of lax enforcement and tracking mechanism, almost all service providers and retail outlets do not provide bills nor do they pay value-added tax or general sales tax. This loophole needs to be plugged so the government continues to get this revenue stream.
The country cannot go on deficit financing forever.