In response to Bloomberg’s claim that India is preparing an overhaul of its direct tax laws and reworking the capital gains taxes, the Income Tax department clarified that “there is no such proposal before the Government”.
Bloomberg’s sources said that the laws would be replaced to help Prime Minister Narendra Modi reduce widening income inequality if he returns to power next year.
“At the heart of the rework is changes in capital gains taxes that Modi’s administration believes benefit the nation’s wealthy, the people said, asking not to be identified as the details are private,” the report added.
The anonymous sources also said that this isn’t progressive and against the principle of equity, said one of the people. A panel may be appointed to build on proposals submitted to the Finance Ministry in 2019 with an eye to implementing them in 2024, though no final decisions have been made yet.
India’s reliance on indirect taxes — levies on consumption — rather than direct taxes on capital is often cited by economists as the main culprit behind the country’s poor getting left behind even as the nation minted 70 new millionaires each day between 2018 and 2022. Oxfam International estimates the top 10 percent of India’s population holds 77 percent of national wealth and government data show about six percent pay income tax.
An overhaul of the six-decade-old income tax law was first proposed under Prime Minister Modi’s predecessor in 2009 but successive governments have failed to complete it. While India has tweaked some tax rates and exemptions for individuals and companies, it is still trying to address some other issues such as standardizing the tax rates on capital gains.
The government tried to address this issue partially in the recent budget by taxing debt funds at the income tax rate.
With a new direct taxes code, the government is also looking to replace India’s complicated tax system with a simpler law to draw in companies looking to shift their operations out of China amid growing tensions between Washington and Beijing. More importantly, it could help burnish India’s credentials as an investment destination after companies such as Vodafone Group Plc and Cairn Energy Plc challenged tax decisions in courts in the past.
A new direct taxes law would complete the Modi government’s tax overhaul push after it replaced multiple indirect taxes with a goods and services tax in 2017, transforming India into a single unified market.
(With Bloomberg Inputs)
