There is no denying that India has come a long way from being a stringent tax system to an equitable slab-rate structure, an effort aimed at widening the tax base and generating more revenue. The government has framed progressive tax policies and procedures, the implementation of which will decide how quickly we move towards a more sophisticated tax system.
Evolution of tax system
The Income-tax department is the biggest revenue mobiliser for the government. It was the financial crisis of the 70s that saw taxpayers face an unbelievable maximum marginal rate of 97.75% on their personal income. This extra-ordinarily high tax rate was subsequently reduced and taxpayers had to pass through 11 slabs progressively, with the tax rate rising from a mere 5% to 75%. Since then, there has been a consistent and gradual decline in tax rates.
India’s tax system has evolved over the last 5-6 decades, with the current maximum marginal rate of tax at 30%. As part of a rationalisation drive, a surcharge of 10% was recently levied on the ‘super-rich’ (having total income of more than R1 crore) to ensure the chunk of tax is collected from people in the high-income bracket.
Simplifying compliance through technology
The government’s focus on simplification by use of technology is a welcome move. Policies and procedures have been introduced for simplifying regular compliance and administration through technology, in line with the trend seen in developing countries. However, it seems the operational environment needs to get acquainted with technology to ensure smooth implementation. The picture on that front is still far from perfection.
The last decade saw the government sign information exchange agreements with several countries. The impact of merely having reporting requirements is questionable, and the real objective can be achieved by corrective measures, using the data collected under the agreements.
Compulsory Tax Residency Certificate (TRC)
To ensure only the intended beneficiaries obtain treaty benefits, it is now mandatory for taxpayers to obtain a tax residency certificate from the relevant authorities containing the prescribed particulars. Expatriate employees, even those on short visits to India from countries with which India has a tax treaty, need to obtain TRCs before claiming treaty benefits.
Reporting foreign sources of income made mandatory
To build a transparent tax system, the government is creating laws to track overseas income/assets held by Indian residents. The annual reporting of tax returns in India is now equipped to capture these.
In order to tax unreported incomes