India Plans Direct Tax Reforms

By Global Tax Weekly

Major tax reform efforts are often undertaken with the intention of making life easier for taxpayers. But they can be enormously disruptive for tax planning in the short-term, as taxpayers adjust to life under a new regime. Spare a thought then for taxpayers in India. There, they are still getting used to the idea of the national goods and services tax, often described as one of the most significant economic reforms in India’s post-colonial history. Now they could be faced with a shake-up of direct taxation as well.

By putting in place the GST regime this year, the current Government was congratulated for achieving in three years what the previous administration failed to do in ten. Will it be able to pull off a similar achievement with the direct taxes code?

Reforming the outdated direct tax regime in a similarly expedient manner would represent a spectacular success for the Modi Government with regards to tax policy. But viewed in the light of the indirect tax reforms, perhaps it would be easy to underestimate the scale of the task at hand.

This wouldn’t be the first time such an undertaking has been attempted. Indeed, direct tax reform has a history stretching back as far as the GST legislation. But this project wasn’t nearly as successful. The Modi Government eventually cancelled the Direct Taxes Code, first introduced in 2009, as the proposed legislation was known, because it had hung around Committee Land so long it had become outdated, which was rather ironic given its intent was tax code modernization.

So perhaps taxpayers shouldn’t get their hopes up too much. Indeed, the prospect that direct taxation may or may not be subject to reform may merely increase tax uncertainty for taxpayers in India. But at least they are already well used to that.

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