Adi Godrej, chairman of Godrej group, says instead of raising taxes, the government should have reasonable rates of taxes for more people to be willing to pay them. Godrej spoke to Nupur Anand about his expectations from the upcoming Union Budget. Excerpts from the interview:

What are your expectations from the Budget?
As the president of the Confederation of Indian Industry, I have met the finance minister and we have told them is that right now the perception of India is good and should be maintained. I think it should be a growth-oriented Budget. In India increasing taxes, direct or indirect, has never worked well and reduction in rates has led to higher collection. There has been a lot of loose talk on increasing tax rates and bringing in things like inheritance tax.

Even the finance minister has been advocating bringing new taxes on super rich…

Yes, he has said that this should be looked into. We had very high taxes in India when our collections use to be very low, GDP was growing only at 2-3% and the cost of collecting the estate duty was higher than the collection itself. No developing country has inheritance tax. It is a phenomenon of developed countries. They grow at 2% and they don’t need savings to grow. Their savings rate are low. Here we need savings to grow. It would be totally a folly to bring in such taxes. Fiscal balance is very important, there are many ways of doing it. For instance, we have suggested to the finance minister that our width of taxation is very low. There are many people who want to pay taxes but are reluctant to do so because they think if they become the first ones then someone will open the past records. You have to be practical about tax collection to bring people in. You have to tell them that if you declare taxes we are not going to automatically look at the past.

Any estimate of the size of the parallel economy?
That is very difficult to estimate. I don’t think anyone knows exactly. But that’s not the point, if you have reasonable rates of taxes then more and more people will be willing to pay taxes. If you have high rates then you will have people who are trying to legally and illegally avoid paying taxes.

So they should play to the psychology…
Absolutely, they should look at incentivising. High rates of taxes just don’t work.

What are the steps you think the government should take to bring the economy back on track?
The best thing is to introduce goods and services taxes (GST). This will add one-and-a-half totwo percentage point growth to GDP. Almost all indirect tax evasion will go away. It will add to growth. Other reforms will have positive effect. For instance, exports. Today a lot of indirect taxes paid in the country are not refunded to exporters, and that has an effect. Once GST comes it will boost exports tremendously. Let us hope it can be implemented quickly as this has the potential to be a game-changer.

Do you think 2015 is a fair date?
No that’s too late, I think they should do it earlier. There is no reason why it can’t be done earlier.

The state seems to be moving to a consensus…
Yes, you must sit across the table and discuss what you want.

Why can’t there be 100% compensation?
I told the Prime Minister that you guarantee 110% compensation. The states will collect much more than what they are collecting now.

Why doesn’t the message go through the states?
It is going through. There are some politics, some bargaining, some past issues. They should compromise, work it out and introduce it.

Do you think it will be a full-blown GST or a compromised one?
It doesn’t matter. GST should come in. Suppose the rate of tax-10% central and 10% state. If you want to say central and state will be 8-12%., then fine, just start it off.It will still be much better. Then later you can finetune it. Like when we brought VAT it did tremendous good. Some states didn’t agree, they thought they will lose out. But then they saw that the states that had joined are doing very well and then the remaining states later joined in. Same with FDI, now some states don’t want it. But the states that allow it will benefit and the rest will join.

But administering it partially will be challenging?
It could be difficult. But what I am saying is that starting off partially is better than not doing it.