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 Tax Freedom
 
Lower tax rates will bring in more resources
The Economic Times, India Thursday, July 01, 2010

TS Krishna Murthy
Economists and political philsophers have always emphasised the importance of lowering tax rates and simplification of tax rules. The recently attempted Direct Taxes code(DTC) removed many exemptions and lowered the tax rate. Taxaton should be kept as low as possible and should be enforced strictly, writes T S Krishna murthy in The Economic Times.

The need to keep tax rates and laws under certain norms has been emphasised by political philosophers and economic analysts from time immemorial.

...

The direct taxes code (DTC) attempted by the government in 2009, which was supposed to bring in simplicity, certainty and easy administerability, came in for enormous criticism since the sweeping changes contemplated were neither pragmatic nor reasonable in certain areas relating to company taxation, taxation of savings/ perquisites/ capital gains/ business income.

The most attractive feature of the DTC was to remove many exemptions and to lower the tax rates. The attempt was no doubt laudable. However, the criticism against the code was that it was not pragmatic in its approach as it resulted in new complications in tax law.

...

Having been in tax administration for more than three decades and having seen the steady deterioration in tax administration in recent times, I am of the view that the tax rates can substantially remove its irritable character if they are kept as reasonably low as possible along with simple law.

If the tax administration can be rationalised and made more taxpayer friendly, the proposed changes need not necessarily result in recalibration of tax rates.

... ...

In the case of security transactions tax, which has an advantage of capturing tax on all such transactions, a provision can be made for deducting tax at higher rate in respect of transactions within one year. The old system of taxing capital gains will definitely result in more leakage of revenue and litigation.

What is therefore crucial is not the revision of tax rates due to proposed changes but an efficient tax administration.

...

Therefore, there is no need to increase the tax rates provided genuine attempts are made to improve tax administration. Lower tax rates along with reasonable tax administration can always bring in more resources than higher taxes and complicated tax administration.

This article was published in the The Economic Times on Thursday, July 01, 2010. Please read the original article here.
Author : TS Krishna Murthy is the former Chief Election Commissioner of India.
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