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India's Tax Reforms Up Against Massive Opposition

by Lorys Charalambous, Tax-News.com, Cyprus

06 December 2002


Jaswant Singh, India's new finance minister, has run into a storm of protest after a report proposed major changes to the current tax system in order to improve woefully low rates of tax collection. While Mr Singh begins to prepare for his first budget next February, he has commissioned a report from senior adviser Vijay Kelkar which has pitched the minister into immediate controversy.

The report proposes to abolish a host of complex exemptions to income tax, and a reduction in the number of tax bands, but has immediately been condemned by almost everyone, proving, say its supporters, that it must be good.

Something needs to be done, it is widely agreed. The rate of central tax collection is a paltry 9% of GDP, while the budget deficit will reach 11% of GDP next year on current trends. Because of multifarious exemptions, and straightforward corruption, only 30m of the country's 1bn population pay taxes, and most of those are middle class employees on relatively low incomes who can't afford to bribe tax collectors, say critics of the system.

Hence the storm of protest which has greeted the Finance Ministry's proposals. But Mr Singh, having been given office because of his willingness to confront the vested interests of India's tangled and opaque economy, has a great deal of power to act. His budget is widely expected to be very radical. Then again, the history of India's tortured progress towards economic orthodoxy is littered with the shards of bright, new initiatives which were ground under the heels of the rich and powerful.


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