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Income Tax Policy
There can be an alternative perspective to the questions raised about the tax system by the Economic Survey 2015-16. Within the limits of the present tax regime, the number of taxpayers cannot be significantly larger than at present. Further, while tax incentives provide benefits only to those liable to pay taxes, a criticism of such incentives as "pro-rich" needs to also address the question of whether the incentives serve the purpose for which they have been provided.
In recent years, there has been an increased focus in the union budgets on the system of taxation. The budgets have been proposing a reduction in tax incentives so that a more broad-based tax regime is in place with a larger number of economic agents coming within the ambit of taxation.
In Budget 2016, in the realm of corporate taxes there are proposals to reduce the statutory tax rate alongside a reduction in the exemptions provided. In personal income tax, while there are some pronouncements in terms of tax policy (an increase in the tax liability of individuals earning more than Rs 10 lakh from dividends), there is also a conviction that not enough people are paying taxes in the country. This point of view finds articulation in the Economic Survey for 2015–16 in Chapter 7 where it is argued by means of cross-country comparisons that the number of taxpayers in India is considerably lower than what it should be. Earlier in the survey, in Chapter 6, it is argued that tax incentives in the income tax regime, especially the incentives for savings, should be phased out since they deliver benefits to the “rich.” These are interesting positions on which there is need for an extended debate. In what follows, an attempt is made to spell out some of the contours of such a debate.
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