India may have a lower tax base, but its tax-to-GDP is much higher compared to its peers, Sanjay Malhotra, secretary, department of revenue, ministry of finance, said at a Confederation of Indian Industry session on July 26.
“The tax-to-GDP, given the level of development, is not low. We are slightly above what our per capita income indicates,” the secretary noted.
Malhotra further highlighted that the tax base would increase as more formalisation takes root.
The World Bank notes that a tax-to-GDP ratio of over 15 percent is a key ingredient for economic growth. India’s general government tax-to-GDP ratio of 18 percent, is lower than China’s at 21 percent and US’ 25 percent.
“More people will find it difficult to stay out of tax base and tax net,” he pointed out.
Listening to the concerns of the industry on capital gains, Malhotra pointed out that the government has simplified the process.
“It is primarily a simplification exercise. We have given you one rate, instead of two the industry demanded. It is an exercise to remove the tax arbitrage between various asset classes and an attempt to reduce difference in taxation between capital gains and other forms of income,” he pointed out.
The finance minister in the maiden Budget of Modi 3.0 had increased capital gains tax to 12.5 percent from 10 percent earlier without indexation and done away with the system of indexation benefits.
The government has retained the earlier threshold of considering 2001, which can be used to calculate fair market value of a property.
For instance, if a property was purchased in 1996, the person can use the fair market value of 2001 or cost of acquisition as of 2001 can be considered.
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