Indian Government Proposes Sweeping Tax Reforms

by Lorys Charalambous, Tax-News.com, Cyprus

06 November 2002

Far-reaching tax reforms proposed by a special commission charged with finding ways of simplifying India's notoriously complex tax system could mean that the majority of individual taxpayers will no longer be liable to pay income taxes, it emerged this week.

According to reports in the local and international media, the proposals put forward by the committee - which is headed by Vijay Kelkar, an advisor to Finance Minister, Jaswant Singh - include increasing the personal tax exemption limit from its current level of 50,000 rupees to 100,000 rupees, and introducing exemptions on some types of dividend and capital gain.

A BBC report on the planned tax reforms on Monday revealed that: 'As 75% of India's 25 million taxpayers declare income of less than 100,000 rupees a year, the recommendation would free them from direct taxation.' The news service went on to add that: 'The reform proposals would save Indian business up to 700 billion rupees a year.'

However, in its forthcoming 2003/04 budget, expected in February 2003, the Indian government needs to increase overall tax revenues in order to rein in its 11% of GDP deficit.

It is hoped that, if adopted, the Kelkar report - combined with a previous set of proposals on indirect taxes - will tighten up the various loopholes in the country's tax system which make tax evasion so tempting for businesses and individuals, and that this tightening will compensate for the lowering of the tax burden.

Recommended