Topic -Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
3) It is important for India to widen its direct tax net. Analyze.(250 words)
Why this question
It has been repeatedly highlighted that India has one of the lowest direct tax payer to population ratio. In this context it is essential to discuss why there is a need to increase that base and what are the benefits it will accrue.
Analyze- here we have to examine methodically the structure or nature of the topic by separating it into component parts, and present them as a whole in a summary.
Key demand of the question.
The question wants us to dig deeper into the issue and bring out as to why there is a need for India to widen its direct tax base- what benefits it will provide and why it is important.
Structure of the answer
Introduction- Write a few introductory lines about the need to widen direct tax base E.g to end extreme poverty sustainably, the states governing the world’s poor need to be strengthened such that they are both accountable to the needs of the poor and have the capacity to meet those needs etc
Discuss why there is the need of fiscal deepening of India and also discuss its consequences E.g
- India is trapped between the very poor countries that get a lot of foreign aid and the wealthy ones with very strong tax collections;
- the tax collected for every unit of economic output in India was minuscule compared to other countries;
- the Indian state will be in a better position to perform its key duties without running into repeated fiscal crises;
- higher direct taxes could provide space for significant cuts in indirect taxes such as the goods and services tax, which in effect means a shift from a regressive to a progressive tax system;
- a widening tax pool because of formalization means the current perverse system in which efficient firms are taxed at a high rate because inefficient firms manage to slip outside the tax system will end etc.
Conclusion– based on your discussion, form a fair and a balanced conclusion on the given issue.