Think Change Forum (TCF), an Indian think tank on June 13, 2024, said that the government can reduce tax rates, maintain a low tax-to-GDP ratio, and still maintain its tax collection by including the informal economy in its tax net. Stressing the power of India's large population, experts of TCF were unanimous on the need for a shift in the taxation mindset from Rates to Revenue.
The think tank in a release listed five bold reforms needed to take the country to USD 25 trillion GDP by 2047.
5 Tax Reforms
Think Change Forum estimates that if the government includes the informal economy in the tax net, a 30 per cent to 35 per cent increase will be recorded in the tax base. TCF recommends a taxation ideology that revolves around revenue-focused taxation by lowering tax rates after enlarging the tax-paying base. Increasing the base is enough to fund India’s investment and development needs, TCF said in a release.
1. Lower Tax rates With Minimal Deductions
Sudhir Kapadia, Sr. Partner, EY India, said, "It is time to bite the bullet on direct tax reforms. There should be one simplified rate structure for businesses and individuals-- one simple three-rate structure with low or moderate rates, no surcharges and cesses, and no significant deductions.
However, Kapadia acknowledged, "How much fiscal space governments will have to further lower tax rates remains to be seen as demands on government spending in physical and social infrastructure continue unabated. It will be a challenge for the government to balance its efforts to lower tax rates with its efforts to meet its infrastructure spending targets to achieve high growth targets."
Additionally, simplifying the tax slab structure by eliminating deductions ensures transparency and ease of compliance. Such measures not only promote tax efficiency but also provide businesses with greater clarity and certainty regarding their tax liabilities.
2. Pro-growth And Investment Policies
The government should focus on implementing pro-growth and investment policies aimed at fostering higher income and consumption levels. Such policies involve initiatives to stimulate investment, encourage entrepreneurship and promote innovation across various sectors of the economy.
3. GST reforms
“It is time to rationalise the GST structure by lowering the number of slabs. Further constraints related to availing of input tax credits need to be eliminated," Kapadia said.
TCF argues that a wider tax base will lead to more revenue collections citing an increase in GST collection. Under GST, taxpayers increased from 60 lakh in 2017 to 1.40 crore in 2023 with over 114 crore returns reported to be filed till June 2023.
Kaushik Dutta Co-Founding Director of Thought Arbitrage Research Institute, said, “ A simplified GST regime will enable the informal economy to join the formal economy, take input tax credits, and become competitive. Tax evasion continues to be a big challenge along with classification issues. The inverted duty structure is also an impediment".
4. Settlement of Tax Disputes
The cases pending at the CIT(Appeals) level should be settled at the earliest. As of March 31, 2022, over 5 lakh cases, amounting to Rs 14.2 trillion remain unresolved. Simplifying laws and compliance processes can expedite the resolution of these disputes, release blocked funds, and foster a more efficient and equitable tax system, TCF release said.
5. Tech-enabled Smart Tax Administration
Kapadia said tax filing needs to be streamlined to make it hassle-free and the tax administration experience for end users needs to be enhanced.
It is imperative to improve taxpayer services, particularly in interacting with the Centralised Processing Centre. Moreover, it is essential to leverage the use of digitisation to encourage voluntary compliance and prompt tax payments.
