To ease demonetisation pain, Budget 2017 may moderate tax rates, broad-base tax system

In order to soothe the pains of demonetisation and widen the tax base, the government may look at moderating the tax rates and broad-basing the taxation system, in the Budget, to be presented by finance minister Arun Jaitley on February 1. The big challenge for the government is to plug the issue of low compliance of those earning between Rs 10-15 lakh as the top 30% tax bracket kicks in at a modest level of Rs 10 lakh. Ideally, it should have a relook at the recommendations of the Direct Taxes Code 2009, which underlined doing away with all tax deductions and taxing incomes between Rs 1.6-10 lakh at 10%, Rs 10-25 lakh at 20% and above that at 30%. Corporate tax, the government had announced its intention in Budget 2015 to reduce the rate from 30% to 25% by 2020 and remove various exemptions over a period of four years. The 2017 Budget should provide a roadmap on lowering corporation tax rates with the implementation of GST simplifying the country’s complex indirect taxation system.