India’s tax base presently stands at 1.5 crore taxpayers out of 130 crore citizens i.e. 1 percent of population. 3% of working adults (25-65 years) pay income taxes. In china, 25% of working adults pay taxes. We can increase revenues and reduce deficit by bringing in more tax evading citizens into the tax net. The tax base can be increased by simplifying tax laws and encouraging people to file taxes. DTC is a new tax law in the same direction.
Advantages:
The Income tax act is obsolete for the new age tax planning strategies followed by compaanies. DTC will be beneficial for all parties.
DTC is focused on less taxation rather than exemption. This is also expected to reduce tax evasion.
A smaller tax code that can be understood by the common man. Brief and easy law means better compliance.
Many MNCs shy away from investing in India due to obsolete and exploitative tax laws. DTC will change the tax environment by creating a code comparative to global tax practices. it will attract MNCs to setup themselves in India.
An effective tax rate for large companies — that includes the dividend distribution tax — at about 48% is way too high. It’s 25% in China, 21% in the US and 17% in Singapore. DTC is expected to simplify the tax system and reduce tax rates.
Challenges:
India is at a different stage of development with high tax evasion. To ensure that the new DTC is in line with international tax practices and follows global rules and regulations for taxation is going to be a challenge.
Reduced tax collection in the short term can spike India's deficits and create problem for the government’s revenue stream