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  1. Union Budget 2017: PM Narendra Modi misses opportunity for big-bang income tax reforms

Union Budget 2017: PM Narendra Modi misses opportunity for big-bang income tax reforms

Even though it is a fact that the government’s keep big relief measures for the Budgets in the last two years of their tenure, ignoring the restructuring of income tax slabs to reduce the tax burden in Rs 5 lakh to Rs 15 lakh annual income bracket means the efforts to curb the black money creation will remain largely elusive.

By: | Updated: February 1, 2017 2:08 PM
PM Narendra Modi. (PTI) PM Narendra Modi. (PTI)

Santosh Tiwari Even though it is a fact that the government’s keep big relief measures for the Budgets in the last two years of their tenure, ignoring the restructuring of income tax slabs to reduce the tax burden in Rs 5 lakh to Rs 15 lakh annual income bracket means the efforts to curb the black money creation will remain largely elusive.

Though the Budget presented by Finance Minister Arun Jaitley has been historic in several ways, the announcements clearly show a lack of direction, especially in the tax domain. Instead of going for an overhaul of the income tax structure, the government has again favoured tinkering of tax rate in the lowest slab and compensating with an additional surcharge in the higher income bracket.

The income tax rate has been reduced from the current 10% to 5% for income between Rs 2.5 lakh and Rs 5 lakh, and a surcharge of 10% has been added in the Rs 50 lakh to Rs 1 crore income bracket. Even the reduction in the corporate tax rate—from 30% to 25%—is limited to just the medium and small sector enterprises having turnover of up to Rs 50 crore.

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The finance minister and PM Modi probably want to get a complete picture of the tax revenue gains from demonetisation before announcing major changes in income tax structure.

It would have been good if FM Jaitley and PM Modi would have accepted the fact that high tax is one of the main reasons for tax avoidance today, instead of just announcing the figures on how expenditure and investment patterns in the country are not matching with the taxpayer numbers.

There is clearly a need to enhance the limit for levying the top income tax rate of 30% from the current Rs 10 lakh, which is quite low. While Rs 25 lakh limit for 30% rate, proposed in the Direct Taxes Code of 2009, is still a good bet for tackling the “missing middle” problem that is visible in people paying less tax in the Rs 10-15 lakh income bracket, it will have to be done along with the scrapping of the tax deductions.

But, avoiding this shows that there is clearly, a fear in this government’s mind that the opposition will latch on to any measure that will be seen as favouring the well-off in the country. This may prove costly for the Bhartiya Janata Party (BJP) politically.

It will be interesting to see how the positive public perception for the party post-demonetisation takes shape now after the Budget, and impacts the results of the assembly polls in five states, including Uttar Pradesh and Punjab, in the immediate run.

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