The finance ministry’s move to set up a six-member task force to overhaul the Income Tax Act is welcome. The current Income Tax Act dates back to 1961, although it has had bits spliced on to it every now and then. Some of these bits have made it more progressive. For instance, almost everything proposed by a committee set up by the United Progressive Alliance 2 government to create a direct taxes code, has since been added on to the law. This includes the so-called General Anti-Avoidance Rules, the planned phasing out of exemptions for companies, and the lowering of the tax rate for companies to 25% from 30%. Indeed, for individuals, provisions under the current tax law, are far more liberal than the ones suggested by the code.
Still, there’s room for improvement.
Hindustan Times learns that the task force (and not a committee or a panel) has been mandated to go through the current law, section by section, and effectively write a new law. This will take time, which is not entirely a bad thing. Business is just returning to normal after the temporary disruption of the reformist Goods and Services Tax that India moved to earlier this year, and another sudden jolt is avoidable.
The new law should be simple, effective in terms of broadening the tax base, and have adequate safeguards to prevent the harassment of honest taxpayers. It should also be progressive and global in outlook, in recognition of the fact that big companies invariably operate across tax jurisdictions. And it should, ideally, enshrine rates in a code so that there’s a feeling of permanence to them. In terms of the rates themselves, nothing much should be expected; India has come a long way from the peak of the licence raj era when the tax rate was 97% (Yes, 97%).
In the past year, India has set up a monetary policy council and a GST council. It has also received a report from a committee headed by NK Singh on fiscal policy reform. The finance ministry is considering the recommendations of the panel that includes an independent fiscal council. If it agrees with the recommendations and agrees to create one, India would have a contemporary institutional architecture in place. These are all sound reforms that will have a long-term impact. A new direct taxes code would be the icing on the cake.
{{/usCountry}}In the past year, India has set up a monetary policy council and a GST council. It has also received a report from a committee headed by NK Singh on fiscal policy reform. The finance ministry is considering the recommendations of the panel that includes an independent fiscal council. If it agrees with the recommendations and agrees to create one, India would have a contemporary institutional architecture in place. These are all sound reforms that will have a long-term impact. A new direct taxes code would be the icing on the cake.
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