The repeal of the retrospective tax shows Modi government means business on reforms

Source: The Indian Express

Relevance: This article explains government actions to boost investor confidence

Synopsis:

Along with the taxation Laws (Amendment) Bill, India has taken many steps to boost investor confidence.

Introduction:

The government has recently introduced the Taxation Laws (Amendment) Bill, 2021, in Parliament. The bill seeks to nullify the contentious retrospective tax law by amending the Income Tax (IT) Act of 1961 and the Finance Act of 2012. 

This move will boost investor confidence.

Read more: Retrospective taxation and the Taxation Laws (Amendment) Bill – Explained, pointwise

The other moves of government to boost investor confidence:

India is enjoying one of the best years of foreign direct investment and foreign portfolio investment.

  • For many decades, India had one of the highest effective corporate taxes (at 27%) in the world. But recently, the government brought the effective corporate taxes to near world competitive levels.
    • An effective tax is simply the ratio of the tax paid to income earned. The difference between the stated nominal and the actual effective arises because of legal tax deductions.
  • After having one of the highest real policy rates in the world, the RBI has introduced a trend of having a competitive real policy rate.
  • The Taxation Laws (Amendment) Bill will directly influence Indian sovereign (and corporate) bonds to become part of global bond indices. This will result in reducing the cost of borrowing for governments and corporates.
Read more: The sovereign right to tax is not absolute

The Commerce Department’s High Level Advisory Group committee report  was published in September 2019. That report had argued for several reforms, including some major reforms in the capital market. It is time for government to implement that and increase further investor confidence.

All this will result in more capital and more investment — both of this will result in higher growth.

 

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