Topic -Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
4. It is important for India to widen and simplify its direct tax net. Analyze in context of measures taken by the government in this regard. (250 words)
Reference: The New Indian Express
Why this question
It has been repeatedly highlighted that India has one of the lowest direct taxpayers to population ratios. Recently, the revenue secretary, while addressing tax professionals in an event, stressed the need to rewrite the tax laws to get rid of numerous exemptions and special treatment bestowed on select business activities or individuals.
Directive word
Analyze- here we have to examine methodically the structure or nature of the topic by separating it into component parts and presenting 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 the direct tax base E.g. Despite the government’s several attempts at simplifying direct taxes, not much has been achieved in this direction. It is probably time for the government to overhaul direct tax laws like the way it did for indirect taxes with the implementation of GST
Body-
Discuss why there is the need for 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 balanced conclusion on the given issue.
