Former IMF Executive Director Advocates for Personal Tax Reductions in India
Former Executive Director of the International Monetary Fund (IMF), Subhash Chandra Garg, has called for a reduction in personal income tax rates in India, emphasizing that the current tax burden on individuals is excessively high. He suggests that the government should prioritize tax relief for individuals over corporations, noting that while corporate tax rates have been reduced in recent years, personal income taxes have not seen comparable adjustments.
Garg points out that the highest personal income tax rate in India reaches approximately 42.7%, which is significantly higher than in many other countries. He argues that such elevated rates can discourage consumption and savings, potentially hindering economic growth. By lowering personal income tax rates, disposable incomes would increase, leading to higher consumer spending and investment, thereby stimulating the economy.
He also highlights the disparity between corporate and personal tax rates, noting that the effective corporate tax rate was reduced to around 25% in 2019, while personal income tax rates have remained largely unchanged. This imbalance, according to Garg, places an undue burden on individual taxpayers and could be addressed to promote fairness in the tax system.
Garg’s recommendations come ahead of the Union Budget presentation, where tax policies are a focal point of discussion. He urges policymakers to consider restructuring the tax framework to alleviate the financial strain on individuals, which could, in turn, enhance overall economic activity.
In addition to advocating for lower personal income tax rates, Garg suggests broadening the tax base by reducing exemptions and improving compliance. Such measures would aim to maintain revenue neutrality while fostering a more equitable tax environment.
These proposals have sparked a broader debate on tax policy in India, with various stakeholders weighing the potential benefits and challenges of adjusting personal income tax rates. As the government prepares to announce its fiscal plans, the balance between revenue generation and taxpayer relief remains a critical consideration.
