Even as the clamour for reducing personal income tax rates continues, the government doesn’t seem to be convinced with the idea of a cut across the board.
Talking to CNBC-TV18, top government sources shared that “there is no case for lowering tax rates for the super-rich in the country, rather rich are taxed at a much lower rate in India when the tax rates are compared globally.”
On the contrary, sources said that “Some groups have demanded higher taxes for the rich to compensate a lower tax regime for the middle class.”
The revenue department is also convinced with this thinking that taxes should be lowered for the middle class but a decision can be taken only at the highest political level, that too after keeping all revenue concerns in mind, sources added.
The revenue department has received many representations, citing that the personal income tax rates should be lowered for the middle-income group.
“There are strong pressures on the government to increase the tax on rich and reduce it on the middle-income group. The revenue department is currently assessing the impact of this rate rationalization,” sources added.
Meanwhile, as this discourse continues and the government is yet to take a final call on whether tax rates can be rationalized or not, the task force on direct tax simplification in its report in August had suggested lowering of personal income tax rates across all tax slabs.
According to the proposal in the task force, headed by current member CBDT – Akhilesh Ranjan, the task force is understood to have recommended "to continue with the minimum exemption limit of Rs 2.5 lakh per annum. It has also suggested continuing with the tax rebate announced in the interim budget for those with an income of up to Rs 5 lakh per annum. A 10% rate is recommended for income from Rs 2.5 lakh- Rs 10 lakh per annum. 20% for income of Rs 10 lakh to Rs 20 lakh per annum, 30% for income bracket of Rs 20 lakh - Rs 2 crore and 35% for income of Rs 2 crore and above per annum.”
Not just this, the revenue department is also assessing the revenue impact of rationalization of commodities and equity taxes such as Securities transaction tax, long term capital gains tax, dividend distribution tax, etc, sources added.
The finance ministry, however, has some concerns on big-ticket direct tax rationalization, which could lead to a huge impact on the fiscal math.
On the other hand, experts have mixed opinions, Rahul Garg, a tax partner at PwC India says, “To my mind concern on direct tax could be based on a school of thought that direct tax incentives, etc. do not show tangible outcomes. Typically response time of direct tax policy and change interventions to serve an economic outcome is long and at times fuzzy, as such to deal with urgent situations it may not be considered as a preferred tool.”On the other hand, Sandeep Jhunjhunwala, Director, Nangia Andersen LLP, says, “India is one of the highest tax levying countries with a peak rate of 43% for individuals earning more than INR 5 crores. While the United States currently has seven federal income tax brackets, with a peak rate of close to 50%, India, currently is one of the highest tax levying countries as well, with an effective rate of 43% for individuals earning more than Rs 5 crores. While on the basis of the principle of equity, it could be argued that super earners should pay more taxes, a better approach could be increased in the overall tax base, rather than imposing a higher tax burden on a select few"