Reviving private investment is key to achieving India's vision of a $5 trillion economy. How should taxes and revenues be balanced in this regard? Discuss.
Refer - Indian Express
Enrich the answer with other sources, if the question demands.
IAS Parliament 5 years
KEY POINTS
Both the budget and the Economic Survey focused on revival of private investment to ensure sustained long-term growth. Thus, there is strong case for further and aggressive reduction in tax rates on the grounds of revival of investment, and helping India become a $5 trillion economy.
Balancing taxes and revenues
· Competitiveness is affected by tax rates, interest rates, exchange rates, and labour costs.
· In order to improve their competitiveness, countries can reduce its cost of capital, make labour more competitive.
· Due to reforms by RBI, there has been considerable improvement in communication and a gradual lowering of policy rates, but this has also been accompanied by a more than equal lowering of inflation, that is, the real repo rate has yet to move below 2.3 per cent.
· The sovereign bond issue will help, but not a quick acceleration in GDP growth.
· Exchange rate change is no longer operational, labour codes are too slow to change, and monetary policy is sluggish in its operation, and impact.
· The only real growth option for Indian policymakers — cut tax rates to internationally competitive levels.
· Ostensibly, tax rates are need to be set at optimal level to maximise tax revenue — and tax revenue depends on both income and tax compliance.
· Tax compliance can either be considered as more firms filing taxes or more firms revealing a closer approximation to true income.
· Improving compliance alone can ensure greater resource mobilisation through taxation — and without increasing the tax rate (and may indeed occur if the tax rate is reduced).
· The non-linear relationship between tax rate and tax revenue (as per cent of GDP) is revealed by the famous Laffer curve – with zero tax rates, you get zero tax revenue and with 100 per cent tax rate, you get zero tax revenue.
· In India, we tax at 44 per cent to get 3.5 per cent of tax revenue (as percentage of GDP). Asper Laffer curve , the tax rate level at which revenue is maximised is around 23 per cent — half India’s tax level.
Vandana 5 years
Kindly review
IAS Parliament 5 years
Good answer. Keep writing.
