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New Delhi: Taxation
reforms in India have not kept pace with economic growth, leading
to the problems of tax evasion and money laundering and resulting
in an estimated $1.4 trillion of black money, an expert said.
"In India, tax reforms have lagged behind growth. It is a big
challenge for politicians and policymakers to keep the pace of
reforms with growth," Jeffrey Owens, director of the OECD (Organisation
for Economic Cooperation and Development) Centre for Tax Policy
and Administration, told IANS during a visit here.
He said high tax rates and loopholes in policies led to huge black
money in India, which is mostly stashed abroad.
According to unofficial estimates, the quantum of Indian black
money ranges from $450 billion to $1.4 trillion.
"Indian economy has transformed in the last two decades. Along
with high growth, it has increasingly become importer and exporter
of capital. But tax regulations have largely remained the same.
You have to change with the changing environment," the OECD
official said.
Owens said the proposed tax reforms would help plug loopholes in
the system and boost growth.
India plans comprehensive reforms in both direct and indirect tax
regulations. The government aims to replace the archaic Income Tax
Act, 1961, with a simplified norm called Direct Tax Code (DTC)
from the beginning of the next financial year.
The DTC Bill, that aims at reducing tax rates but expanding the
tax base by minimising exemptions, was introduced in parliament in
August last year. However, the bill has not been passed yet.
Under the new tax regime, the government proposes to introduce
measures that would help curb tax evasion and black money. It
proposes to bring into the tax net all passive income earned by
residents from substantial shareholding in companies situated in
the low tax jurisdictions, often referred to as tax havens.
Assessees are also required to furnish details of their investment
and interest in any entity outside India.
Finance Secretary Sunil Mitra said recently that the reformed tax
regime would help bring back the ill-gotten money stashed abroad.
To reform the indirect tax regime, the government proposes to
introduce a unified Goods and Services Tax (GST). It seeks to
bring uniformity in indirect tax structure across the country by
replacing the excise duties, services tax, value-added-tax, state
surcharges and local levies with a unified tax rate.
Originally, the GST was planned to be introduced from April 1,
2010, but it has been delayed because of stiff opposition from the
Bharatiya Janata Party (BJP)-ruled states.
The new tax regime is unlikely to be implemented soon, given the
rift between the federal government and opposition-ruled states.
Owens said the proposed reforms would boost the government's
revenues and economic growth.
According to him, the focus of the reforms should be on broadening
the tax base and reducing dependence on direct taxes. "The focus
should be on consumption tax and property tax. Corporate taxes
need to be reduced and the tax base broadened," he said.
Owens said that to attract more foreign investment, India needs to
bring stability and predictability in its tax regime.
(Gyanendra
Kumar Keshri can be reached at gyanendra.k@ians.in)
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