India's Complicated Tax System Could Get A Simplification Makeover: Here's What We Know

Prime Minister Narendra Modi’s government could be preparing to overhaul the country’s direct tax laws, in order to simplify the complicated system of rules and decrease income inequality.

What Happened? Per a Bloomberg report, the new plan will support PM Modi’s goal to reduce the wealth gap, should he return to power next year.

The changes may include increasing capital gains taxes for high earners, which are currently taxed at a lower rate than regular income. The move aims to make the tax system more equitable and to help support the nation’s economy.

The Finance Ministry received proposals in 2019 and a panel may be appointed to build on these, although no final decisions have been made.

The reliance on indirect taxes on consumption has left many behind, including the nation’s poor, while India has produced 70 new millionaires per day between 2018 and 2022. In fact, according to Oxfam International, 77% of the national wealth is held by the top 10% of the population, while only about 6% pay income tax.

See also: UPI Exudes Digital Payments Dominance As Transactions Surge 82.2% in FY23, Reveals NPCI

The report notes that several world leaders are currently looking to narrow income gaps, from President Xi Jinping‘s “common prosperity” initiative in China to President Joe Biden‘s plan to raise taxes for the wealthiest in the US.

A Phased Gameplan? Modi’s first term saw India become a unified market with the introduction of a goods and services tax (GST) in 2017. Government sources are of the opinion that a new direct tax law would complete his tax overhaul and support India’s position as a consumer destination for global businesses.

The government recently attempted to address this issue by increasing taxes on debt funds in the latest budget. A simpler tax system would also make India a more attractive location for companies seeking to relocate from China due to growing tensions between China and the US.

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Posted In: GovernmentRegulationsDirect TaxNarendra Modi