Finance minister Arun Jaitley on Monday said India needed to lower taxes to be globally competitive, raising hopes of tax cuts as people battle cash-crunch brought in by demonetisation.
The philosophy that high taxation would bring greater revenues had run its course. High rates led to higher evasions, the minister said, hinting at changes in the tax regime when he presents the budget in a little over a month.
“What you need is lower level of taxation, to provide services more competitive in nature… there is a need to lower level of taxation as we broad-base the economy. This is one important change you will witness while you will be in service,” Jaitley said.
He was addressing officers at the inauguration of training of the 68th batch of the Internal Revenue Service (customs and central excise officers) at the national academy of customs excise and narcotics in Haryana’s Faridabad, 34km from here.
The budget would likely offer “significant tax benefits and reliefs”, a source in the government told HT.
There is also talk of restructuring of tax slabs and an increase in exemption limits to provide relief to taxpayers hit hard by the government’ decision to scrap Rs 500 and Rs 1,000 banknotes.
The deadline for cash restrictions announced by Prime Minister Narendra Modi ends December 30 but the situation is far from normal, with people still queuing up at banks and ATM kiosks for money. There are concerns that the cash crunch could slow down the economy.
The minister has already underlined the need to bring down the corporate tax rate from 30% to 25% over four years. But post-demonestisation, the rate could be reduced in one stroke, sources said. A lower tax rate will also attract investors.
The corporate tax in China is 25%. Singapore is even lower at 17%.
Jaitley, who has been promising a stable tax regime, said authorities needed to be fair in interpreting laws to create a tax-friendly environment.
“Voluntary compliance by citizens by payment of due taxes needs to be reciprocated by tax authorities by a tax-friendly administration,” he said.
Jaitley said tax collectors would need to sharpen their skills as indirect central and state taxes would eventually converge.
“Once they converge into one tax, the cooperation between the Centre and the state authorities itself will have to reach very high standards,” he said. The minster was talking about the goods and services tax, the country’s biggest tax reform that aims to create a common market, doing away with numerous local levies.