Flat I- T rate undesirable: Baru

Hyderabad, Nov. 30: As the taskforce to draft a new direct tax law gets cracking, industry and trade officials say a flat rate income tax system is undesirable for a country like India with wide income inequality.

The new law is to replace the existing Income Tax Act, 1961. “A flat rate is not progressive in an unequal society,” Ficci secretary general Sanjaya Baru told PTI, when asked about suggestions in some quarters for a flat income tax

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framework as is prevalent in countries like Russia.

The current I- T slabs in India compare favourably with most democracies where the government is expected to invest in social welfare and infrastructure, he said.

According to Assocham national council chairman Rahul Garg, progressive rates of I- T are desirable to attain the objective of fairness in the income tax system. Given the revenue resource requirements of the country, Mr Garg said a very low rate of income tax is not immediately feasible. And it would be unfair to levy a relatively high rate of income tax on all income groups, he maintained.

Hence, a system prescribing higher rate of I- T for a higher income group helps garner revenue without becoming burdensome on lower income taxpayers, he explained.

Infosys’ former CFO V. Balakrishnan observed that for a developing country like India, which is in lower middle income bracket, a flat tax structure may not be an equitable one. Income inequality in India is one of the highest, with 22 per cent of the national income going to top 1 per cent.