Flat tax

Updated: Feb 24 2014, 08:48am hrs
Stagnating GDP growth pretty much makes it certain the government will miss its FY15 tax targets just as it did in FY14 when it made equally ambitious targets. As compared to a FY14 tax buoyancy of 1a 1% hike in GDP growth causes a 1% hike in tax collectionsthe government is looking at a FY15 buoyancy of 1.4 times. Apart from GDP growth picking up significantly, two other factors will raise buoyancythe DTC/GST and flattening tax rates. GDP wont pick up in a hurry and DTC/GST won't be implemented quickly. But flattening rates is easier.

Tax data for personal income taxes shows people earning

R10-20 lakh pay an effective tax of just 8.6% versus around 20% for those with higher incomes. One reason for this is that Indias highest tax bracket kicks in too quickly, encouraging tax evasionthe highest 30% bracket kicks in at R10 lakh while DTC had recommended raising this to R25 lakh. Getting rid of the plethora of tax exemptions will also help since, right now, the taxman has no way of knowing whether a firm is evading taxes or simply making use of available exemptionsas compared to the corporate tax rate of 32.44%, the effective rate of tax is actually 22.85%. If the next

finance minister doesnt work on this, tax targets will be missed again. By a bigmargin.