1. NMIMS University Mumbai Part-time MBA - Finance
Tax Reforms in India
Dipankar De
Mumbai, April 2011

2. Direct and Indirect Tax Revenues
Source: Economic Survey ;

3. Tax Revenue as a Percentage of Gross Tax Revenue

4. Service Tax – A Growing Source of Revenue
No. of services
Tax rate (%)
Tax revenue
Growth rate 75 10
14200 80 78
23055
62.4 93 12
37598
63.1
100
51301
36.4
106
60941
18.8
109
58454
-4.1
(Apr-Dec)
117
44081
19.2

5. Tax revenue as a percentage of GDP
Direct Tax
1.9
2.8
3.2
4.2
5.9
5.7
5.6
5.4
Peronal Income Tax
0.9
1.3
1.5
2.1
Corporation Tax
1.4
1.7
2.7
2.9
3.8
3.7
Indirect Tax
7.9
6.5
5.5
4.8
4.0
Customs duties
3.6 3
2.3
1.8
Excise duties
4.3
3.4
3.3
2.5
1.6
Service tax
0.1
0.5
1.0
1.1
Total
10.1
9.4
8.9
9.8
11.9
10.8
9.6
9.5

6. Personal Income Tax
 Year
Finance Minister
MTR
Percentage %
Before
Y V Chavan
85.0
Plus 15% surcharge, Effective rate (highest in the world!!)
Direct Tax Enquiry Committee (Wanchoo)
77.0 to
C Subhramanium
60.0
Pranab Mukherjee
55.0
Long Term Tax Policy, 1985
V P Singh
50.0
Budget
Manmohan Singh
40.0
Budget
Chidambaram
30.0
Even in , there were 8 income tax slabs 3 slab structure was first introduced by Manmohan Singh in Budget Degree of progressivity schedule has been considerably reduced over time

7. Indian Tax Structure
India has a tax structure with a three-tier federal structure (the union government, the state governments and the urban/rural local bodies).
The main taxes/duties that the union government is empowered to levy are: income tax, customs duties, excise duties, sales tax and service tax.
Income tax is a single tax that is levied on a comprehensive basis both on persons and companies.
Internal indirect taxes are a complicated matter: they are separately levied on goods, services and intra-states’ sales.

8. History of Tax Reforms
Reforms in personal income tax rates began in , following the Wanchoo Direct Taxes Enquiry Committee report of 1971.
Modern tax reform was really launched in India by V P Singh during his brief two years as finance minister in For a start, he and his team took a holistic view of the tax system, both direct and indirect.
For the first time, V P Singh articulated a medium- term strategy for tax reform and placed the “Long Term Fiscal Policy” in Parliament.
There was a conscious effort to deploy rule-based, fiscal policies in place of discretionary physical controls in the task of economic management.
Finally, there was a serious attempt to improve tax administration.

9. History of Tax Reforms
L K Jha chaired the Indirect Taxation Enquiry Committeee, whose report of 1978 laid the foundation of the Modvat reforms implemented in V P Singh’s time
Professor Raja Chelliah was the head of the Tax Reforms Committee (TRC) of Its three volumes were widely (and rightly) acclaimed as the most comprehensive and analytical treatment of Indian tax policy and reform issues since Independence.
Amaresh Bagchi and his team in 1994, at the National Institute of Public Finance and Policy produced a classic study of domestic trade taxes in India. This became a key report guiding the reform of state sales taxes and exploring the VAT options available under India’s Constitution.
Govinda Rao in the Expert Group Report of 2001 suggested the basis for the recent integration of services taxation with goods taxation under MODVAT.
Parthasarathi Shome’s report in 2001 updated the TRC’s recommendations
Vijay Kelkar task force reports. The most recent report makes a persuasive case for a nationwide, integrated dual-VAT across the central and state governments.

10. Tax Reforms
In 1991, in reaction to a severe macroeconomic crisis involving high fiscal deficits, India carried out a series of economic reforms, among which a tax reform.
The main proposals comprised:
the reduction in the rates of the most important taxes;
the enlargement of all taxes’ bases;
the transformation of the taxes on domestic production into something similar to a value added tax;
the simplification of laws and administrative procedures.
Most of the recommendations have been implemented over the years, at least at the central level. In the case of the states the reforms of their tax systems did not proceed.

11. Kelkar Committee
In September 2002 the Government set up a new Task Force on tax reforms headed by V. Kelkar.
The Kelkar committees suggested sweeping reforms including:
raising the limits of income tax exemption and two-tier brackets;
cut in corporate tax rate;
three-rate basic customs duty structure;
service tax levied in a comprehensive manner;
repeal of wealth tax;
removal of tax exemptions, rationalization of incentives for savings and simplification of procedures;
gradual moving over the destination based, consumption type value added taxes at the state level.

13. Tax Reforms Strategy

14. Tax Measures Proposed

15. The Direct Code

16. The Direct Code

17. The Direct Code