UNIVERSITY OF PETROLEUM AND ENERGY

STUDIES

SUBMITTED TO :

SYNOPSIS

“RATIONALIZATION OF TAX POLICIES AND RATES IN INDIA”

SUBMITTED BY:

Umang Rai

5000055136

R129216100
 RATIONALIZATION OF TAX POLICIES AND RATES IN INDIA

SYNOPSIS

ABSTRACT

It has been widely acknowledged that India's tax structure system was absurdly complicated,
beset with countless anomalies and was impossible to administer properly over the decades.
The direct tax system was characterized by a narrow base, for too many exemptions rules
ostensibly encouraging saving of various forms. In indirect taxes, there were too many rates,
which often distorted the choice of inputs and led to inappropriate resource allocation.
Nominal rates were very high, and evasion became widespread. Since the laws relating to
taxation in India are highly complex, it is beyond the taxpayers' understanding. It provides
enough scope for unscrupulous elements to indulge in tax evasion as well as tax avoidance.

STATEMENT OF THE PROBLEM

“The problem of widespread corruption in the various tax departments. It has also brought
about the problem of tax evasion of unimaginable dimension. Another problem of the Indian
tax structure is that the incidence of taxation in urban areas is much higher than in rural areas.
This is because the rural areas' main occupation is agriculture, and income from agriculture
has been kept outside the purview of income tax. Development of the Indian tax structure is
closely linked with needs and circumstances, and it is not based on any scientific lines as
some taxes in India have been imposed under compulsion but subsequently withdrawn under
political pressure and purely political consideration. Another problem is that income from
taxation does not increase automatically in proportion to an increase in national income.
Hence, the government finds no way out other than to increase the taxes every year to
maintain a definite ratio of taxes to income. The Indian tax system also lacks administrative
efficiency, overlapping of functions, inefficient manual process, lack of control, lack of sound
information, clear cut guidelines, inadequate facilities and representation in legal disputes
etc., all these problems have damaged the ideals of tax administration, the image of the
department and burden of tax is not equitable. All the above issues indicate that there are
many controversies and confusions, problems, complexities and external pressures relating to
taxation provisions that are affecting public finance. Frequent changes in rates and
procedures had upset the whole system. To restructure the taxation policy, the Government of
India appointed a task force committee to suggest ways and means of improving the tax
system in India.”

LITERATURE REVIEW-

“John Mathai Committee (1953): The Taxation examination Commission was chosen by
the Government of India in 1953 under the authority of John Mathai as an administrator. The
terms of reference of the commission were to inspect the occurrence and appropriateness of
Central, State and Local tax collection on different classes of individuals and specifically to
concern (a) changes required in the current tax assessment arrangement and (b) new
passageways of tax collection. The board made numerous supports to the Government.”

Justice K.N. Wanchoo Committee (1970): in 1970, the Government of India set up the
Direct Taxes examination Committee with the administration of Justice K.N. Wanchoo as an
executive. The panel was approached to embrace nitty-gritty and productive systems to bring
out dark cash and keep away from its age through more evade to check charge anticipation
through a few legal measures and cycles, including the development of trusts decrease the
unpaid expense debts.

Hagaragi, S.B. (1998), had researched "Rationalisation of Personal Taxation: A Study

of Tax on Salary Income" at Gulbarga University, Gulbarga- The specialist in the
examination talks about the different pay segments under the arrangements of the Income
Tax Act. The examination is fundamentally essential information based, and a sizeable
number of respondents have been counseled by controlling the poll. The scientist centers
around the qualifications and reiteration in pay tax assessment from the agents and workers.
The specialist makes an extensive rundown of recommendations to streamline and support
the duty structure to help citizens just as expense gatherer. The checking of the examination
is that it is according to salary, and the methodologies are about that specific side as it were.

Ramesh Babu, R.K. (2007), had initiated research on "Commodity Taxation in India:
Alternative Systems (An Evaluation)" in Bangalore University, Bangalore- The
examination relates the old reign of deals assessment and VAT in the more extensive sense,
including the enlistment system to analyze. Aside from these, different perspectives like
returns, appraisals, discounts, punishments, and so forth have been dependent on the
Bangalore city's essential information.
Patel, Nagaraj Goud (2008) had researched "Perceptions of the Service Providers and
Tax Experts about Service Tax: A Study of Bangalore City" in Gulbarga University,
Gulbarga. The investigation made an endeavor to dissect the structure and the development
patterns of an administration charge.

Kaddipudi, N. Mallikarjun (2009), had undertaken a study entitled "Sales Tax and
Value Added Tax – A Comparative Study" at Gulbarga University, Gulbarga. The
investigation

RESEARCH OBJECTIVE-

“1. To examine the rationalization of the tax system prevailing in developed and developing
countries.

2. To examine the Dr.Vijay Kelkar Committee recommendations relating changes in the

rationalization of Tax Acts and its impact vis-à-vis the government's view

3. To evaluate the cases of tax evasion and methods of avoiding the same.

4. To analyze the implications of changes in taxation provisions on the State

Exchequer/Public Finance.

5. To study areas, this requires simplification of procedures as well as introducing

transparency.

6. To examine the penal provisions and their impact on tax collection.”

RESEARCH QUESTIONS-

1. How are the individuals indulge them in tax evasion and tax avoidance and the provisions
related to the same?

2. Why does the incidence of taxation in urban areas is much higher than in the rural areas,
the fundamental reasons behind this, and how to tackle it?

3. Why income from taxation does not increase automatically in proportion to an increase in
national income?

4. What are the controversies and confusions, problems, complexities and external pressures
relating to the rationalization of taxation provisions affecting public finance?
5. What are the frequent changes in rates and procedures had upset the whole system?

6. How several committees on the national level affected the rationalization of tax in India?

HYPOTHESIS

In view of the writing review, to have a standpoint of the examination, the accompanying
theory has been defined: "A basic and straightforward assessment framework will create
more income to the Government." Since the investigation depends on the diagnostic
technique and the invalid speculation (one variable) is a subjective and elective speculation
(another variable), the speculation's quantitative trying, has not been made.

RESEARCH METHODOLOGY

“The present research work is based on the doctoral method of research. The research has
been done by using primary as well as secondary resources. The library is used for
completing the present analysis along with newspaper articles, periodicals internet sites,
reports, debates, law review, judicial decisions, and commentaries of various authors. Data
will be collected from books, stories, the internet, political views, books, and judgments.
Primary data to that extent of the books will be referred to in great depth. Secondary sources
such as the World Wide Web and articles published therein will also be made use of.”

SCHEME OF THE CHAPTERS

“Chapter 1: Rationalization of tax under Income Tax Act and its provisions– An overview
This chapter covers various acts introduced by the Govt. of India before Tax reforms in 1991
and post reforms provisions and also major recommendations made by certain important
committees like Dr. Raja Chellaiah and Dr. Kelkar committees has been included. The study
also deals with the in-depth study regarding Dr. Vijay Kelkar's committee's recommendations
and its implementations by the Government at different levels.

Chapter 2: Tax Evasion and Role of Tax Administration and rationalization of taxation, In
this chapter, the Key problems/factors of tax evasion has been identified. This chapter also
covers the details of the various provisions recommended by the various committees
constituted by various governments to avoid tax evasion. The role of tax administration in
controlling tax evasion, Penal provisions, tax administration problems, etc., have been
analyzed with statistical tools.
Chapter 3: Rationalization of tax laws and to impart greater transparency in tax
administration and the extent of governments implementation at different levels with
modifications.

Chapter 4: Corporate Tax compliance In this chapter, the Kelkar Committee's

recommendations on corporate taxation have been analyzed based on the 50 selected (both
public and private sector) companies by comparing the profit before tax earned by the
companies and tax paid ratio for ten years. The analysis also covered the tax revenue
foregone by the government due to various tax deductions and exemptions prevailing in the
tax system, coefficient of variation between statutory rates of tax and actual tax paid and its
effect on the tax revenue by using the Laffer curve method.

Chapter 5: Impact of tax reforms on Public Finance In this chapter details of various tax
reforms introduced since 1991, more specifically Kelkar committee recommendations, the
motivations and the context of undertaking tax reforms, the relationship between national
income (GDP) and revenue collection, broad goals and their impacts on the revenue
collection of the union government has been analyzed.

Chapter 6: Summary of findings and Suggestions In this chapter, a summary of the research
findings is presented. This is done with the background of objectives set for the research
work. Based on the research findings, conclusions have been drawn, and suitable suggestions
are given after the conclusion.”