The underlying message of the new tax Bill is it is another element of voluntary compliance, in line with lower tax rates, a simpler tax regime and an emphasis on self-declaration. The number of Indians filing I-T returns has surged over the past decade, suggesting GoI is on the right track. It also helps that I-T kicks in at fairly high levels in relation to average incomes in the country. The process of tax simplification should make the job of onboarding new assesses easier. Administrative reforms are crucial to accelerating the formalisation of the economy, and technology can help by removing intimidating governance interfaces, such as tax inspectors.
India needs a modern tax architecture to compete for a bigger share of global capital. Stability and certainty are essential, but these principles must be effectively communicated to international investors. The new draft of the I-T law makes a special effort to ease dispute resolution involving cross-border transactions. A bigger effort is required to clear the backlog in domestic tax disputes that is at a worryingly high level. A simpler law is a good starting point, but other parts of the machinery under strain need to be set right also.
