Weeks before Budget, Finance Minister Arun Jaitley lists out benefit of low tax rates
December, 27th 2016
India has been guided by the principle that a lower level of taxation is the key to building a globally competitive economy in the past two and a half decades since liberalisation, FM Arun Jaitley said, touching off speculation about his plans for the Budget, which is just weeks away. "We have seen post-1991 the entire course of economy altering itself," he said. "What you need is a broader base of economy, for which you need a lower level of taxation."
Jaitley subsequently scotched any broader interpretation of his remarks with a tweet. "I have read several inaccurate versions of my speech today at NACEN (National Academy of Customs Excise and Narcotics) in the media."
EThad reported on Monday that the government is likely to announce dramatic changes in the direct tax regime and both personal and corporate taxes could be slashed. The government's November 8 demonetisation announcement has led to economic dislocation and tax cuts would help reverse the loss in sentiment.
Before 1991, policies reflected the belief that higher taxes will fetch more revenue, Jaitley said while inaugurating the professional training programme of Indian Revenue Service officers in Faridabad.
The Budget is likely to be announced on February 1, almost a month earlier than usual, in order to ensure that spending can kick off from the April 1start of the financial year itself.
"You need to manufacture products and provide services which are more competitive in character and therefore your taxes have to be globally compatible," Jaitley said. "Competition is not merely domestic, competition is global."
The last two and a half decades have been guided by that principle, he told the officers. The Indian Revenue Service administers and runs the country's tax network.
The government had in the 2015 Budget announced a road map to lower corporate taxes to 25% over the next four years while simultaneously phasing out exemptions. A beginning was made in the last Budget when rates were cut marginally for companies with a turnover of up to Rs 5 crore.
India's peak tax rate, including surcharges, is as much as 35% but the effective rate is only around 23% due to multiple exemptions. The introduction of the goods and services tax (GST) is also expected to bring down effective indirect taxes.
Jaitley said the belief of the past seven decades was that tax avoidance was not improper or immoral. "That was considered to be commercial smartness," he said.
This needs to change, as does the attitude of tax officials, Jaitley said.
"Voluntary compliances have to increase and the mindset of the taxpayer (should be) that payment of legitimate taxes is a responsibility and that then should be reciprocated by you with a confidence in the taxpayer that the taxpayer is to be trusted, except when it's proven otherwise," Jaitley said, outlining the role of tax officials. "And therefore, only in those select cases, very objectively selected, you go in for a wider audit or a wider scrutiny itself."
There should be no room for discretion, he said. "There are no grey areas in taxation laws. It's either white or black. Either a tax is payable or a tax is not payable. And therefore to discover grey areas in fiscal laws is not possible," Jaitley said. "That's the same principle that applies to criminal law also. Either an offence has been committed or not committed. You interpret the law as it is without adding or subtracting a word, that's the primary function of the taxperson," he said.