Tax Reforms

The Government has created a Tax Policy Research Unit (TPRU) and Tax Policy Council to be chaired by the Union Finance Minister with nine other members including Minister of State for Finance, Niti Aayog Vice Chairman etc. The Council will be advisory in nature, which will help the Government in identifying key policy decisions for taxation

The TPRU will comprise of officers from both the Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC) as well as economists, statisticians, operational researchers, legal experts, said an official release.
The decision is based on the recommendation of the Tax Administration Reform Commission (TARC) that have in its First Report, identified handling of tax policy and related legislation as one of the areas in need of structural modifications. Right now this is handled in the CBDT and the CBEC. Independently of the two boards, the Tax Research Unit (TRU) and Tax Policy and Legislation (TPL) wings also send proposals to the union Finance Minister. To bring consistency, multidisciplinary inputs, and coherence in policy making, the TARC recommended that a Tax Council supported by a common Tax Policy and Analysis (TPA) unit should be established to cater to needs of both direct and indirect taxes. It also recommended that Comprising tax administrators, economists, and other specialists such as statisticians, tax law experts, operation research specialists and social researchers should be set up for both the the boards.
The TPRU will be a multi-disciplinary body with the objectives of carrying out out studies on various topics of fiscal and tax policies referred to it by CBDT and CBEC. It will provide independent analysis, prepare and disseminate policy papers and background papers on various tax policy issues. It will assist Tax Policy Council and liaise with State Commercial Tax Departments.
What are the problems with Indian Tax Regime:
  • In India, tax rates are higher, the system is complicated and capital controls restrict foreign financial transactions.
  • Various tax laws have made compliance more costly in India. India is ranked 157 in the ease of paying taxes.
  • Further, the effective tax on profit is higher: The corporate tax rate and the dividend distribution tax put together make the tax rate on profits nearly 50%.
  • The capital gains tax makes financial transactions even more unattractive. This regime is made more tortuous by an onerous set of capital controls.
Is Tax Avoidance illegal:
  • Some countries, including OECD countries, consider even tax avoidance as illegal.
  • A number of OECD initiatives have been taken to reduce tax avoidance:
    • An agreement on Base Erosion and Profit Shifting (BEPS) aims to prevent companies from choosing low-tax jurisdictions to book profits in.
    • The Automatic Exchange of Information (AEOI) framework will facilitate information flows among signatories.
    • The Foreign Account Tax Compliance Act (Fatca) targets non-compliance by US taxpayers and compliant countries have to provide customer information to the US government.
Way Forward:
  • First, rationalisation of capital controls should be a top priority. Many government reports have laid out the path forward
  • Second, India must move to a simple tax regime with lower compliance costs. The blueprint is ready in the Direct Taxes Code.



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