Ending tax terrorism
A simple tax system, with stable rates and minimal exemptions, is the best long-term antidote to tax terrorism
Tax terrorism has been a potent issue in India for many years. It even made its way into the 2014 election manifesto of the Bharatiya Janata Party. Prime Minister Narendra Modi has done well to tell tax officials this week that they should remove the fear of harassment most Indian taxpayers live with. This is useful, but the true answer to the problem lies elsewhere.
The Indian tax code is numbingly complex. It came to be so because of the high tax rates that India lived with before the 1991 reforms, with powerful interest groups seeking an escape through a web of exemptions. High tax rates, too many exemptions and a deeply ingrained culture of suspicion has victimized honest taxpayers even while millions sit outside the tax net.
The solution is a simple one. Modi must push ahead with the direct taxes code as it was originally designed. A simple tax system, with stable rates and minimal exemptions, is the best long-term antidote to tax terrorism.