This Budget needs social re-engineering
Individual tax rate of India is at 35.5% compared US, United Kingdom, Germany, France and China. Japan has the highest individual tax rate at 56%.
Is this a reason enough to lower income tax slabs in Union Budget of 2017?
Firstly, individual tax rates and exemption limits have been left broadly unchanged for the past few years.
Kotak Bank, in a research report said, “Many tax payers see the payment of taxes as a burden as they believe that the government has failed to deliver the desired level of social benefits to them in exchange for payment of taxes.”
Individual tax rate of India is at 35.5% lower compared US, United Kingdom, Germany, France and China. Japan has the highest individual tax rate at 56%.
Despite the relatively low individual tax rates in India compared to other countries yet taxpayers try to exempt themselves from paying their taxes because of poor quality of public services provided by governments (central, state, local).
Secondly, large evasion of taxes by large sections of the population in the informal economy, which puts the entire burden of public services on the narrow base of law-abiding taxpayers.
Hence, Kotak said, "We believe this is an opportune time for the government to reduce income tax rates as the demonetization measure may have already forced a rethink among tax evaders, especially small entities in manufacturing and services in the informal sector and self-employed professionals in the services sector."
Sanjeev Prasad, Suvodeep Rakshit , Sunita Baldawa and Anindya Bhowmik analysts of Kotak Institutional Equities said, “We expect the government to gradually deliver on its vision of (1) moderate tax rates and (2) a broad-based taxation system over the next 1-2 years with a start in the union budget on February 1, 2017.”