Direct taxes need to be reformed such that they are simplified and have their exemptions removed, said Bibek Debroy, chairman of Economic Advisory Council (EAC) to the Prime Minister, at a media event.

He highlighted that when the Goods and Service Tax (GST) regime was introduced, the revenue-neutral rate was expected to be at 18 percent. Nearly five years later, the rate is only 11.5 percent, which is not tenable.

The revenue-neutral rate is the rate of tax that allows the government to keep earning the same tax revenue despite a change in the governing tax laws.

“We need to talk about reform of taxation, a simplified direct taxes code, removing exemptions and also the goods and services tax. It is not only about integrating more products and services under the GST framework. It’s also about the GST rate," Debroy said in a virtual address at Mint’s ‘Budget Conversations’.

Debroy also flagged areas of concern in the economy, including the labour market. Despite being cheap and plentiful, India’s labour market was suffering from issues like lack of regulation in informal sectors, lack of skills, poor translation of education into real-world skills and lack of uniformity in the labour code, he said.

“Growth has recovered but there are still concerns around the labour market, particularly the urban labour market, and I also have in mind the declining work participation rates,” Debroy said.

While the central government has recently unified 50 labour codes, several others still remain outside the new consolidated regime of the four heads of wages, social security, safety and industrial relations.

(Edited by : Kanishka Sarkar)