FM pledges better tax regime

New Delhi, May 22: The government plans to phase out exemptions and lower the effective tax rates to global levels to encourage better compliance and leave more money in the hands of the people.

Speaking to reporters on the completion of one year of the Narendra Modi-government, finance minister Arun Jaitley said his government would “remove discretion, phase out exemptions and bring the effective (tax) rate down to global levels”.

In the budget, the finance minister had announced a road map to bring corporate tax rates down to 25 per cent. Officials said personal tax rates could also be brought down in the penultimate year of the Narendra Modi-government’s five-year term.

Globally, the average corporate tax rate is 22 per cent, while the individual tax rate is about 31 per cent. In Asia, the average income tax rate is 28 per cent.

Jaitley is also determined to get the Congress on board to get the GST bill passed in the upcoming monsoon session of Parliament. Sources said he would persuade the Congress leadership to give its consent to the bill, originally prepared by the previous UPA government.

“We could have cobbled the numbers to pass the GST in the Upper House but that would have been self-defeating as Congress-ruled states may have then resisted. However, we are confident that the Congress leadership will agree to the measure in the interests of the country,” sources said.

The Modi government could not push through the constitutional amendment to bring in GST in the budget session of Parliament. The bill was referred to a joint committee of both the Houses, creating concerns that the measure may not take effect as planned on April 1, 2016.

Finance ministry officials are also working overtime to convince the states about bringing in a median GST rate of 16-18 per cent against 25-27 per cent paid on the purchase of goods. Indirect taxes on goods include VAT, octroi, entry tax and a host of other minor cess, including a “luxury tax”.

Officials say high taxes have been hurting demand, offsetting the positive impact of falling fuel and commodity prices, besides leading to high levels of tax avoidance.

Globally, the average GST rate is 16.4 per cent. The average GST in Southeast Asian countries is 8.5 per cent and 10.8 per cent in the Asia-Pacific.

Overall, the aim is to bring down the effective rate of tax in India, including direct and indirect taxes, which some economists have calculated to be as high as 45.1 per cent. This means an average tax-paying Indian takes home 54.9 per cent of his income. In comparison, a US citizen takes home 60.45 per cent of his income, a Chinese 62 per cent, a Brazilian 73.3 per cent and a Russian 87 per cent.

MAT controversy

The finance minister, who in recent times has been dogged by the controversy over retrospective demand of minimum alternate tax (MAT) from foreign funds, said “we are working in the direction of resolving legacy issue plaguing taxation.”

“High taxation rates are never investor or economy friendly,” Jaitley added.

Giving an upbeat assessment of the economy, Jaitley said the economy was growing at 7.5-8 per cent and there was a restlessness to grow even faster, which is the real potential of the country.

In other comments, Jaitley said the government would go ahead with the divestment and strategic stake sale programmes to achieve the ambitious target of Rs 69,500 crore in the current fiscal.

The minister further said the ratio of bad loans on the balance sheets of banks was falling.

Non-performing assets had reached a high of 5.64 per cent but for the period ended March “it has come down to 5.2 per cent”.