05 August, 2021

Less Tax, More Revenue

The author is director, National Institute of Public Finance and Policy, Delhi

Less Tax, More Revenue
outlookindia.com
-0001-11-30T00:00:00+05:53
February is the month when the economic policy scenario warms up, coinciding with budget presentation. The discussions following the Kelkar Committee report and politicians’ responses to the proposals have already underlined the political economy of tax reforms. Still, there’s hope.

Surely, it is necessary to rationalise the personal income-tax incentives. The gross savings concept used for providing incentive in the past has not encouraged savings. Surely, most saving incentives should go as they do not add to the savings rate, erode the tax base and distort the choice between different saving instruments. Shouldn’t the tax system just avoid these preferences and have lower tax rates for everyone? But there is a case for increasing the tax relief to cover savings up to Rs 50,000 in long-term savings like pension funds and life insurance.

There is no case for totally exempting dividends from taxation either. The justification offered for exempting dividends is that when corporate tax rates are brought on par with the highest-margin personal tax rates, and when all...

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