Why tax reforms in India is necessary?
- International Competiveness must be imparted to the Indian economy.
- High cost nature of the Indian economy.
- More equity, inflows to stabilize economy.
- Tax resources must be maximized.
Direct tax front –> Highest is 30% income tax (three) reduction from more than three income taxes before 1991.
- Better administration – exemptions are withdrawn.
- MAT introduced for the “Zero tax companies”.
- The direct tax code 2012 outdated income tax code of 1961.
Tax Expenditure
- Introduced in 2006-07 budget (Union).
- Some exemption can be justified, in the regional growth infrastructure invest.
- It will create more tax revenue.
Tax heaven
A country or territory, where certain taxes are levied at low rate or not at all.
- Lack of effective exchange of tax information with foreign tax authorities.
- Secrecy management in banking. (E.g. Switzerland, Cayman Islands).
- Self promotion as offshore financial centre.
E.g. Switzerland, Singapore, Monaco, Cayman Island, Hong Kong among 45 countries.
Different Tax Words
Tax incidence: Government imposes tax on companies and burden is on consumers.
Tax Burden: Those who pay tax directly. (Income tax)
Tax Base : Value of goods, services and income on which tax imposed.
Tax rate : How much tax is due from each source?
Tax shelter: Legally reduce or avoid tax liabilities.
