India planning to reduce income inequality

19/04/2023

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India planning to reduce income inequality

India is planning an overhaul of its direct tax laws to replace a byzantine matrix of rules and helping Government of India to reduce widening income inequality.

India levies a tax of as much as 30% on income and it taxes gains on certain asset classes such as equity funds and stocks at a lower rate.

The main reasons behind the country’s inequality are India’s reliance on indirect taxes, levies on consumption and direct taxes on capital. As the nation affluent 70 new millionaires each day between 2018 and 2022 it is necessity to cut down the gap between rich and poor.

Estimations:

Oxfam International estimated that the top 10% of India’s population holds 77% of national wealth and government data speaks that about 6% pay income tax.
Many ruling governments around the world are doing their best to narrow income gaps.
Such as China President Xi Jinping launched “common prosperity” program while US President Joe Biden had proposed higher taxes for the wealthiest.

Timeline of actions taken by Modi government:

In 2017 Modi government transformed India into a single unified market by replacing multiple indirect taxes with a goods and services tax at his first term in office.
After wards a new direct taxes law is boosting living standards across the population which is good to market India as a consumer destination that global businesses should target.
The government had already tried to handle this issue partially in the recent budget by taxing debt funds at the income tax rate.

Changes after new direct taxes code:

With a new direct taxes code, the government is going to replace India’s complicated tax system with a simpler law to attract companies looking to shift their operations out of China.

More importantly, it will create an image of India as an investment destination after companies such as Vodafone Group Plc and Cairn Energy Plc challenged tax decisions in courts in the past.