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Govt hints at tax rates review as revenues, compliance rise
December, 07th 2007
Increase in maximum rate on personal I-T unlikely


On the whole, we are not terribly away from reasonable international comparison. Parthasarathi Shome



With the general budget round the corner, the Finance Ministry on Thursday held out some hope for taxpayers by indicating that it could review direct tax rates and structures in the coming days on the back of buoyant revenues and some increase in voluntary compliance.

A further dose of good news is that the Ministry has virtually ruled out any increase in the maximum marginal rate on the personal income-tax front as that may affect voluntary compliance.

We cannot have marginal rates that are too high, Dr Parthasarathi Shome, Advisor to the Union Finance Minister, said at a conference organised by tax advisory firm BMR & Associates here on Thursday.

While indicating that high marginal rates would affect voluntary compliance, Dr Shome noted that the Finance Ministry was now in a position to track voluntary compliance and see if it was increasing or not.

The maximum marginal rate on the personal income-tax rate was 30 per cent.

He said India had the most competitive rates as far as the direct taxes were concerned.

However, the taxpayer base, on the direct tax front, was not large as one would like it to be. This was due to the fact that quite a large portion of the economy was still at subsistence level.

Over the past several decades we have moved away from very high marginal rates to commonly acceptable marginal rates. On the whole looking at taxation in America, Europe and East Asia, if I look at corporate and personal combined, we are not terribly away from reasonable international comparison, Dr Shome said.

Admitting that the revenue department was reaping some benefits of tremendous buoyancy in the economy, Dr Shome highlighted that quite a bit of this was also due to tax administration improvements and some increase in voluntary compliance of taxpayers.

The Centres direct tax revenues were growing at about 45 per cent on a year-on-year basis so far this fiscal.

Dr Shome also indicated that comments would soon be sought from public, tax experts and industry associations on the new income-tax code to make the overall structure simple. I believe, it will be a model income-tax code.

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