The convenor of the task force on simplification of direct tax legislation and former member of the Central Board of Direct Taxes Akhilesh Ranjan said equity taxes need serious simplification and tax rate cuts alone cannot help India improve the tax-to-GDP ratio. He also hopes that the government is seriously considering bringing down the personal income tax rates and measures to broaden the tax base to pave way for better collections.
In an interview with CNBC-TV18, Ranjan said, "A question of personal income tax rates has to go along with other measures which are also recommended in the report. It will be the government's call to see how far and to what extent they would like to go into this reform after having changed the corporate tax rates substantially. All aspects that have been mentioned like broadening the tax base, reducing litigation and liberalising the penalty regime must all go into increasing compliance and increasing collections."
On rationalisation of the tax regime, he said, "There are a number of areas where we have made far-reaching changes in the law itself. For example, in capital gains, we have made the whole provisions very logical and simple to follow and understand. Similarly, in areas like taxation of charities, we have made the chapter and the computation very simple. That is why I want the whole report to be implemented."
Edited excerpts from the interview:
Now that you are no longer with the government, how does it feel and what measures do you think the income tax department should take to improve the revenue collections?
It has been a wonderful 37-year journey with the income tax department, having seen the highs and lows of the tax department. When it comes to the way forward, there are always challenges faced by the tax department. With more and more reforms, different and new age challenges come to the fore. Some of the challenges today are on the tax administration and on the tax policy front, to broaden the tax base and see how collections can be increased.
What are the highlights of the task force report? It took very long for the government to form consensus and under your leadership, after a lot of delay, finally the report was submitted to the finance minister. Does the report talk about cutting down the personal income tax and corporate tax rates?
There is a lot more to the task force report than the suggestions on a rate cut on corporate and personal income rates. In fact, what we have suggested in the report is a whole structure on compliance and broad-basing of the tax base and then suggesting appropriate rate structures that can go along with it to improve tax collections. I would personally wish to see the whole report getting adopted in full.
The government has already announced the corporate tax rate cuts and now with the government actively considering personal income tax rate cuts, what is your view on it?
The question of personal income tax rate cut has to go along with other measures which are also recommended in the report. I think it will be the government's call to see how far they can go on the suggestions in the report after the recent corporate tax rate cuts.
I believe the report is under active consideration then I would hope that all the other things mentioned in the report like reforms for broadening the tax base, reducing litigation and liberalising the penalty regime are the things which will go in increasing compliance and collections.
Recently, the OECD in its economic survey on India suggested that the government should go in for tax cuts and broaden the tax base for better revenues, the task force makes a similar observation; how do you see this report?
The recent observation by OECD is correct when it comes to the tax-GDP ratio. I think, what they mean in the report is that the tax-to-GDP ratio in India is still very low and there are several factors for that. .We need to increase compliance, broaden the tax base to ensure that the tax-to-GDP ratio comes close to the normal standards We have addressed these issues in full in the task force report. It is not just the question of reducing or changing the tax rates, it's also the question of what goes along with it.
By just reducing tax rates we cannot make the taxpayer pay more taxes, this might just increase the income of the taxpayer. If the whole tax-paying regime is made simpler and comprehensible, that is where it becomes easy for the taxpayer, so that he thinks he can now comply with the lower tax rates. Only then this can really work.
The measures we have suggested are a comprehensive package and it should be considered as a whole as we do need to increase the tax-to-GDP ratio.
Just the way the government considered to bring down the corporate tax rate structure in a phased manner, spread over 5 years, do you think the government should adopt the same approach on personal income tax rates as well?
I cannot comment on it as I do not know how the fiscal numbers are adding up for the government. It is a call that the government will have to take, in what manner these tax rate changes need to be brought in and to what extent. It will really depend on what happens in other areas, like revenues on GST, what happens in corporate tax rate cut impact, what happens in the other areas of budget, only then a call can be taken on it.
The task force report has also made recommendations on various equity taxes, be it the long term capital gains, DDT, etc. What do you think should be the approach on that front?
As I said, there are a number of areas in which we have made far-reaching changes in the law. For example, in capital gains tax law we have really gone in for making all the provisions very logical and simple to understand. Similarly, law simplification is suggested in the area of taxation and computation of tax on charity.
These simplification measures taken along with rate rationalisation can make a lot of difference in compliance and revenue collections. Simplifications can only help in making these laws more comprehensible and giving comfort to the taxpayer to comply with the norms.
Apart from this, a lot of effort needs to go in managing of pending litigation, a lot taxpayers are fed up of litigation, so these are some of the areas where government needs to show the intent, improve the sentiment, only then the taxpayer will come forward and pay up taxes. Just changing the tax rates or slabs is not the primary focus of the report.
The report is talking about making the law simpler and making the administration more responsive. Along with this, we have given the indicative rate structure, what the new rates could be. I think if all these measures which are partly procedural and partly in the law, are implemented, then I think a large part of the tax reform structure can be addressed.