Question

What are tha defects in the tax policy in India?

Answer 1

Defect # 1. High Rate and Low Yield of Direct Taxes: In India, as in other LDCs, the rate of direct tax is very high but the contribution to the total tax revenue is very low. In the 1950s, the rate of income tax in India was one of the highest in the world but the revenue was very insignificant.

Answer 2

The defects in the tax policy of India are as follows:

• The direct taxes are very high and their contribution to total tax revenue is low

• The high rate of income tax in India

• There is double taxation on dividend

• There is an absence of agricultural tax

• Increase in importance of indirect taxes.

Explanation:

• There has been an increase in the importance of indirect taxes and the importance of direct taxes has decreased.  

• Agriculture is considered as a dominant sector and it does entail any tax. There has been of increase in capital formation and domestic due to double taxing of the dividends.  

• Even though the ‘rate of income tax’ is high in India its contribution to total revenue is low.