Ahead of budget, Jaitley talks of lower taxes, wider base

New Delhi: In a significant remark ahead of the Budget on February 1, Union finance minister Arun Jaitley said on Monday that India needed to move to a lower level of globally compatible taxation to make the country competitive.

“The competition is not domestic, it is global. Gone are the days of the philosophy that high taxation will bring greater revenues. Extraordinary high taxation rates in the past have led to higher tax aversions. Since 1991, the course of India’s economy has altered itself,” the minister said.

While Mr Jaitley was referring mostly to indirect taxes, there are reports that the government may announce some cuts in direct taxes in the Budget to boost the economy.

The demonetisation exercise, announced last month, has resulted in higher tax revenues from unaccounted wealth coming into the system.

“What you need is a broader base of economy for which you need a lower level of taxation. You need to manufacture products and provide services, which are more competitive in character. Therefore, your taxes have to be globally compatible,” Mr Jaitley said while inaugurating a training session for Indian Revenue Services (IRS) officers in Faridabad.

Tracing the behaviour of people in the last 70 years, the finance minister said that there had been an impression that  tax evasion was not improper or immoral. It was considered to be commercial smartness, and some people have faced serious consequences because of this, he said.

According to sources, the Budget will mostly deal with direct taxes, and there may not be a scope to tinker with indirect taxes as the GST Council is discussing them to roll out the much-awaited Goods and Services Tax. Any change in indirect taxes may only be proposed and discussed in the GST Council now.

The finance minister said that there was an urgent need for a mindset change, and India had to move towards voluntary compliance. He said that the payment of legitimate taxes should be considered as part of the process, and nobody should think that tax evasion was acceptable. He pointed out that tax payment was every citizen’s responsibility.

“…It should be reciprocated by you with a confidence in the taxpayer. The taxpayer is to be trusted, except when it’s proven otherwise. And therefore only in those select cases, very objectively selected, you go in for a wider audit or a wider scrutiny,” Mr Jaitley told the officers.

Mr Jaitley told the gathering about the importance of co-ordination between the central and the state administrations for a smooth transition from the old to the new indirect tax regime (GST) so that the taxpayer of the country did not suffer.

GST is India’s biggest tax reform that will replace various federal and state levies with one tax. Central and state finance officials have repeatedly postponed talks on how to administer the tax.

The new tax law would need to come into effect by mid-September when the old system of indirect taxation is due to lapse. Mr Jaitley also said that once GST was implemented, the tax base would increase further.