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Overhaul of indirect tax laws

BloomBerg

India is preparing an overhaul of its direct tax laws to replace a byzantine matrix of rules and help Prime Minister Narendra Modi reduce income inequality if he returns to power next year, according to people with knowledge of the matter.

At the heart of the rework is potential increases in capital gains taxes for top income earners, the people said, asking not to be identified as the details are private. For instance, while India levies a tax of as much as 30% on income, it taxes gains on certain asset classes such as equity funds and stocks at a lower rate. 

This isn’t progressive and goes against the principle of equity, said one of the people. A panel may be appointed to build on proposals submitted to the Finance Ministry in 2019 with an eye to implement in 2024, though no final decisions have been made, the people added.

A Finance Ministry spokesman didn’t immediately respond to an email seeking comments. The benchmark stock index fell as much as 0.6% in Mumbai after the report.

“Our income tax rules, particularly capital gains provisions, have become a patchwork over the decades,” said Rahul Garg, partner at Price Waterhouse & Co LLP. While there is a need to make them easier and equitable, implementing a system which is a win-win for all won’t be easy.

♦️Tax policy should not be tampered until about 25% of India’s population is invested in equity, said Deven Choksey, managing director of KR Choksey Shares & Securities. One estimate suggests only 3% of India’s population invests in stock markets at present. 

India’s reliance on indirect taxes — levies on consumption — rather than direct taxes on capital is often cited by economists as the main culprit behind the country’s poor getting left behind even as the nation minted 70 new millionaires each day between 2018 and 2022. Oxfam International estimates the top 10% of India’s population holds 77% of national wealth and government data show about 6% pay income tax.

Archaic Law
Leaders around the world are trying to narrow income gaps, from China President Xi Jinping’s “common prosperity” program to US President Joe Biden’s proposal of higher taxes for the wealthiest. Modi, who came to power with the strongest mandate in three decades on a platform pledging dignity for the poor, has often been accused of policies that favor the rich
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https://www.reuters.com/world/india/india-eyes-higher-capital-gains-tax-rich-bid-curb-inequality-bloomberg-news-2023-04-18/


April 18 (Reuters) - India's income tax department on Tuesday denied that there was a proposal to increase capital gains tax for top earners after Bloomberg News reported the country was reworking its direct tax laws.

The report said increase in capital gains tax was at the heart of the rework that was aimed at helping reduce widening income inequality.

♦️ The income tax department later tweeted that there was *"no such proposal before the government on capital gains tax"*

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