India’s tax to GDP ratio is not low as is generally believed, and suggestions that the proposed changes to the capital gains tax regime will hurt the real estate sector are misplaced, Revenue Secretary Sanjay Malhotra asserted on Friday.
Acknowledging that expanding India’s tax base is a difficult challenge with no simple solutions, the gradual formalisation of the economy will make it difficult for people to stay outside the tax net, Mr. Malhotra said at an interaction with the Confederation of Indian Industry (CII).
“Our tax to GDP, given our level of development is actually not so low… when you take into account the State taxes. The ratio is at about 11.7%-11.8%, so let’s say 12% for the Government of India, and another 6% is States, so it is about 18%,” the top Revenue official said.
“It has been empirically demonstrated that this could also be a function of income levels in various countries. So if you plot it with per capita income of various countries, then we are slightly above what that per capita income should actually indicate. So we are not doing poorly,” he underlined, adding that the tax base and the tax to GDP ratio had been rising at “more or less” the same pace as the economy.
Addressing industry members’ concerns on the loss of indexation benefits in long term capital gains, especially in real estate transactions, Mr. Malhotra said the changes in the capital gains tax regime are aimed at removing the arbitrage between various asset classes such as equity shares and real estate. To a lesser degree, it is also meant to reduce the gap between taxation on capital gains and other forms of incomes, such as those from salary, business or rentals, he said.
“Some people may say we need to promote housing, and I saw some report saying that the housing industry will be negatively impacted… We give due thought and consideration to whatever considerations come up. I looked at the Nifty Realty [index] and to my surprise, I saw it went down immediately after the Budget… After that, it has recovered, and is more or less in the region of 1,080 to 1,090… So even that has not happened,” Mr. Malhotra observed.
