He also said that demonetisation of high value currency is just one step to combat black money, and more needs to be done.
"Tax reform is really important to curb black money," he said at a panel discussion here.
"More simplification means reduction and presumably elimination of the many exemptions under the existing laws.
Also, we need to spell out many of these rules and laws explicitly. In our case the tax laws are often ill-defined.
That of course leads to scope for discretions," he added.
He said tax reforms like reduction in stamp duty are necessary to stop generation of black money in the system and that this should be done at the earliest following the demonetisation of high value banknotes.
"Demonetisation is one of the steps to stop creation of black money but a lot more needs to be done," said the academic-turned planner.
Underlining the need for removing ambiguities in tax laws, he said: "We have to go back, start looking at those tax laws, if there is a way to make them precise enough so that it is not left to the discretion of the tax officer but the law itself is clear enough that the taxpayer can figure out rather than having to negotiate with the tax officer."
Calling for the need to bring in reforms related to stamp duties to stop black money, Panagariya said: "Stamp duties vary widely across the states and there is need to look at that. If you keep the stamp duties too high, that encourages under the table real estate transactions."