Mains Paper 3: Economy | Mobilization of resources
From UPSC perspective, the following things are important:
Prelims level: Direct and indirect taxes
Mains level: Read the attached story
- The government will take a fresh look at modernizing the Income Tax Act, 1961, after an earlier effort by a six-member task force got derailed.
- The new direct tax law is expected to make taxation more progressive, wherein the tax burden will be higher on those with better payment capacity.
- This approach was evident in the government’s choice of tax rates when it reformed indirect taxation by ushering in the goods and services tax (GST).
- Luxury items are subject to the highest rate of 28%-plus cess and mass use items are either exempted or are kept in the 5% GST slab, although a four-slab system risked making GST more complex.
Issue over Inheritance Tax
- The task force is however, unlikely to propose the difficult-to-implement inheritance tax.
- Although it may be easier to say that one should tax the rich more, implementing an inheritance tax is complex.
- It can only lead to high-income earners getting resettled elsewhere.
- The union government has appointed a task force, which will advise the government on drafting a new direct tax law that suits India’s economic requirements.
- The government has so far attempted to phase out corporate tax concessions, reduce corporate tax rates for small businesses to 25% and give relief to small income earners by lowering tax rates.
- The government also plugged some of the massively abused loopholes in the bilateral tax treaties with Mauritius to prevent tax-evaded money coming back into the country in the form of foreign direct investment.