Arun Jaitley Says India Needs Lower Taxes To Be Globally Competitive

Finance Minister Arun Jaitley said on Monday that the country needs to have a lower tax regime to be globally competitive, in comments that experts see as significant as they come just over a month before he presents the Union Budget. The presentation of the Budget for 2017-18 has been advanced to February 1 this time.

"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 and therefore your taxes have to be globally compatible," Mr Jaitley said today while addressing customs and central excise officers at the National Academy of Customs Excise and Narcotics in Delhi suburb Faridabad in Uttar Pradesh.

Mr Jaitley has spoken earlier too about lower direct and indirect tax rates as last month's demonetisation results in higher tax revenues from unaccounted wealth coming into system, and tax experts say the government may announce some income tax relief to taxpayers in the Budget.

"It is anticipated that the government will have some cushion available to reduce the taxes and honest tax payers could be rewarded with some increase in basic exemption limit," said Sandeep Sehgal, director for tax and regulatory at Ashok Maheshwary & Associates LLP.

There are also expectations of a cut in corporate tax cut for India Inc, which has been hit hard by the ban on 500 and 1000 rupee notes and the massive cash crunch that has followed. The Finance Minister had in the Budget for 2015-16 announced a plan to lower the corporate tax rate from the existing 30 per cent to 25 per cent over a four-year time-frame along with a withdrawal of exemptions.

Addressing the tax officials, Mr Jaitley today said gone are the days of the philosophy that high taxation will bring greater revenues and that since 1991, the course of economy has altered itself. He said competition is not merely domestic but global, and therefore, in the last two-and-a-half decades, governments have been guided by these principles.

Mr Jaitley also said that voluntary tax compliance has to increase in India. Extraordinary high taxation rates in the past have led to higher tax evasion, the minister added.

He said there has also been an impression that there is nothing "improper or immoral" about avoiding adding to government revenue. "The mindset of the taxpayer (should be) that payment of legitimate taxes is a responsibility and then it should be reciprocated by you with a confidence in the taxpayer. The tax payer 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 itself," Mr Jaitley said.

Mr Jaitley also said that once the Goods and Services Tax or GST is implemented, the tax base will increase further.

Referring to the new indirect tax regime of GST that is expected to be implemented from the next financial year, Mr Jaitley said that the process of tax convergence is on and cooperation of the Centre and state officers is needed in the process.

Observing that there are no grey areas in criminal or tax laws, Mr Jaitley said stricter principles would need to be applied to detect violation. "There are no grey areas in taxation laws. It's either black or white. It's either payable or not payable. And therefore to discover grey areas in fiscal laws is not possible, that's the same principle that applies to criminal law also, either an offence has been committed or not committed," the finance minister said.

(With agency inputs)