The recent taxation reforms have sparked a heated debate among economists and policymakers. With a fiscal deficit of 6.8% of the GDP, the government is under immense pressure to increase revenue. The introduction of the Goods and Services Tax (GST) has been a significant step in this direction, with a revenue collection of $15.6 billion in the first quarter.
However, there are concerns about the complexity of the tax system, with 5 different tax slabs and numerous exemptions. A study by the World Bank suggests that a simpler tax system can increase tax compliance by 20%. Moreover, the tax burden on low-income households is a significant concern, with 25% of their income going towards taxes.
On the other hand, the tax incentives for startups and small businesses have been a welcome move, with a 15% increase in new business registrations. To strike a balance, the government needs to revisit the tax code and simplify it, while also ensuring that the tax burden is distributed fairly. This can be achieved by reducing the number of tax slabs and increasing the tax exemption limit for low-income households. With a well-designed tax system, the government can increase revenue, promote economic growth, and reduce poverty.
The time to act is now, and the government must take bold steps to revamp the taxation system.