Time to reduce the tax burden

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Bikky Khosla | 27 Dec, 2016
Ahead of the Union Budget, the Indian industry has pitched for a sharp cut in the corporate tax rate. In a pre-Budget meeting convened by the Finance Minister recently, industry leaders have viewed that the Government, instead of looking for phased reduction of the corporate tax rate, should cut it in one go from the existing 30 percent to 18 percent -- the same rate as existing MAT rate -- in the upcoming Budget. In return, all current tax incentives and concessions could be removed. The proposal sounds sensible. It will help to remove many distortions from the tax system.

The corporate tax rate in India is much higher than it is in many other countries, and bringing it down to the level of 18 percent will help bring India in line with some attractive international destinations such as Singapore, Sri Lanka, UK and Turkey. Considering the sharp drop in demand due to the demonetisation scheme, such a move will also provide a much-needed relief to the industry. Economy observers also point out that the US may soon cut its corporate tax rate drastically, a move that could in turn be a big negative for emerging markets like India. So, it is now an economic necessity to bring down our corporate tax rate as well.

India Inc. is also in favour of modifying the personal income tax rates. In fact, according to many, this is an opportune time for the government to go for the much-needed reforms in this domain. One of the arguments put forth is that the impact of demonetisation may bring in more taxpayers into the tax net in coming days. So, it is the right time not only to help the common man get over the demonetisation pains, but also to go for bold reforms, by increasing the exemption limit, taking cues from the initial proposal under the Direct Tax Code. Such a move is expected to boost consumption and help cure the tax evasion menace.

Meanwhile, Prime Minister Modi on Saturday viewed that those who profit from financial markets must make a fair contribution to nation-building through taxes. Later in a damage control effort, Finance Minister Jaitley clarified that the Centre has no intention to impose tax on long-term capital gains. I don't think it would be a good idea to stress on revenue mobilisation at the cost of the incentive provided to people to invest. For a growing economy like India, the government should instead do its best to promote a savings culture among people and encourage them to invest money in competitive markets.

I invite your opinions. Best wishes for a splendid New Year.