IMPACT OF TAX REFORMS SINCE 1991
Tax reform since 1991 was initiated as a part of the structural reform process, following the economic crisis of 1991.
Direct Tax Reforms:
1. As per the recommendations of the TRC the personal tax brackets were only three, of 20, 30, and 40% starting in 1992–93. Financial assets were excluded from the wealth tax, and the maximum marginal rate was reduced to 1%. 2. Further reductions came in 1997–98, when the three rates were brought down further to 10, 20, and 30 %. In subsequent years, exigencies of revenue have led to adding surcharge and a 2% primary education cess on all taxes.
3. In the case of corporate taxation too, the basic rate was brought down to 50%, and rates applicable to different categories of closely held companies were unified at 55%.The distinction between closely held and widely held companies was done away with and the tax rates were unified at 40% in 1993–1994.
4. In 1997–1998, when personal income tax rates were reduced, the company rate was brought down to 35% and the levy of 10% dividend tax was shifted from individuals to companies
5. The dividends tax rate was increased to 20% in 2000–2001, reduced again to 10% in 2001–2002 along with taxing it in the hands of the shareholders and the policy was reversed once again in 2003–2004 with the levy of the tax on the company.
Direct Tax Code 2009
The new tax code proposes to change the regime to a tax based on the value of the assets in the case of the MAT and proposed sunk cost rather than advance tax. The rate is 2% of the value of the assets and the rate for firms in banking sector is .25%. A reduction in the corporate tax rate from 30% to 25%. In computing taxable profit of an enterprise assets of the enterprise are segregated in to business and investment assets. The exemption limit has been kept unchanged; it is propose to levy the tax at 10% up to 10 lakh, 20% between 10 lakh to 25 lakh and the above that 30%. In the case of wealth tax exception limits as higher as Rs 50 crores and levies the tax at .25% on the wealth above that.
Recent Structure of Personal Income Tax
The below mentioned table provides information about the different slabs for the imposition of income tax: Sl. No.
Total Personal Income
Rate of Personal Income Tax
Up to INR. 50, 000
INR. 50, 000 to INR. 60, 000
INR. 60, 000 to INR. 1, 50, 000
Above INR. 1, 50, 000
Recent Structure of Corporate Income Tax
The imposition of such a tax varies from a domestic company to a foreign organization. Given below are the rates of corporate tax, which is levied on different companies:
a. Domestic Companies: Corporate Income Tax is levied at the rate of 35 % with an additional 5 % surcharge.
b. Foreign Organization (Including project offices or branch offices): Corporate Tax is calculated at the rate of 40 % with a 5 % surcharge
Reform of indirect taxes
Reform impetus on Excise duties came with the implementation of the recommendations of the TRC. The measures included gradual unification of rates, greater reliance on account based administration
1. In 1999–2000, almost 11 tax rates were merged into three with a handful of ‘‘luxury’’ items subject to two non-vatable additional rates (6 and 16%).
2. These were further merged into a single rate in 2000–2001 to be called a central VAT (CenVAT), along with three special additional excises (8, 16 and 24%) for a few commodities.
Reform in Customs duties
By 1990–1991, the tariff structure was highly complex varying from 0 to 400%, Over 10% of imports were subject to more than 120%.
The TRC recommended reduction in the number and level of tariffs to 5, 10, 15, 20, 25, 30 and 50% to be achieved by 1997–1998. The reform that followed resulted in the reduction in the peak rate from over 400 to 50% by 1995–1996.
Recent Basic Custom Duty rates vary in between 0 % to 30 %.
Reforms in Service tax
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