NaMonomics for new age taxing times
NEW DELHI: The smell of money is in the air. The Narendra Modi government’s blueprint for the New Age Economy is ready. Taxes are the golden key to raise revenue. The middle class and the upper middle class will come under the taxman’s lens increasingly. The number of taxpayers will double to 100 million. Only around 4 percent of 1.3 billion Indians pay income tax. Tax expenditures, which benefit only the rich, will go.
Benami is out and real estate taxation intensity and scope will increase. But business will get a break, with the gradual reduction in corporate income tax from 30 percent to 25 percent. The hope is that the tax base will spread and stimulate growth.
In the new economic master plan for India, taxation plays a major role in revenue growth. Tax enforcement will become more draconian. As a result, black money will diminish, hopes the government. While existing laws have been amended through the Benami Transactions (Prohibition) Amendment Act 2016 to tackle black money in real estate, municipalities and local bodies may be empowered to raise more property tax to meet social and development expenditure.
Another key recommendation under consideration for 2017 is to implement the gradual reduction in corporate income tax from 30 per cent to 25 percent while broadening the tax base to encourage foreign investment and discourage tax evasion.
According to the government, corporate income tax is major revenue source at 20.6 percent of total tax revenue and 4 percent of GDP.
“The proposal to introduce a single 25 percent corporate tax rate for all companies while removing concessions is being examined. In 2016-17, the budget rate reduction was introduced from 30 per cent to 29 per cent. As of now, tax concessions for corporates are estimated to be around 0.8 percent of GDP. A broader tax base will help stimulate job creation and growth,” a senior official said. He added that comprehensive tax reform will raise enough revenue for the much-needed social and physical infrastructure for inclusive growth.
The government is also examining whether a dispute resolution mechanism — Authority for Advance Ruling (AAR) — for international tax matters could be extended to domestic issues to reduce tax-related litigation.
Garibi hatao II
Although statistically speaking 140 million people have been freed from poverty in the last decade, lack of access to core services for the majority of the population is a major concern for the government. Agriculture productivity is low despite the fact that it accounts for around 18 percent of GDP and almost 50 percent of India’s total workforce.
In 2017, the government will examine measures such as enabling reform in land ownership laws, leasing and land pooling, improving land registry and stepping up digitisation of land records.
Government sources said since the majority of farmers work on very small plots, the new initiatives could provide a much-needed financial support to their families and end inequality in this anaemic sector. The government is also planning to replace many subsidies in 2017 with better-targeted household financial support.
“Public spending on healthcare, slightly more than 1 percent of GDP, is low. Despite Right to Education, the quality is uneven. India is growing fast and will continue to in 2017, but the challenges of the skilled labour force are looming large. However, the country is poised to add more jobs this year with growth. More public spending on education and training will be required to create a skilled workforce of 500 million people by 2022,” sources said.
GST hopes
One of the government’s key objectives is to introduce GST from April 2017. Consultations, workshops and training sessions for the industry, traders, staff and other stakeholders have begun. According to government data, the normal monsoon in 2016 and growth in export orders in the second quarter of the year will add to the robust growth in 2017. The 7th pay commission will raise public wages and pension by 16 per cent and 23 per cent, which will support consumption and market growth.