India’s Tax Revolution post 2024 Election – What to expect in the NDA’s Third Term

4th June 2024 marks a revolution in Indian history. Indian citizens have voted for stability and growth, which is a result of remarkable work undertaken by the Prime Minister Modi led government over the past 10 years. The newly elected government would be set to table its full-fledged Union budget for FY 24-25 soon in the monsoon session of the parliament.

With the dynamism and changing face of the Indian lower house, the Modi government will face challenges to balance the mandates of the country as well as win heart of the citizens in order to race towards the next 5 years of power in the country.

Current policies and business-friendly approach: 

The government’s current policies are often geared towards promoting growth and bringing in business efficiencies. Over the past decade, significant progress has been made to simplify the tax structures, reduce corporate tax rates, and enhance compliance. One of the landmark reforms has been the introduction of the Goods and Services Tax (GST) along with the participation and commitment to the BEPS project of G20.

The Promise of Direct Tax Code: 

A major point of anticipation in the BJP's tax strategy is the introduction of the Direct Tax Code (DTC). The DTC aims to overhaul the existing Income Tax Act, which has been in force since 1961. The new code is expected to simplify the tax laws, make them more transparent, and ensure better compliance. This reform is crucial as it promises to rationalise tax rates, reduce litigation, and make India a more attractive destination for business.

Balancing Act: Growth vs. Popularity

Despite these business-friendly measures, the BJP's popularity has witnessed fluctuations. While Modi's leadership has been instrumental in driving economic reforms, the government must tread carefully to maintain its support base. High taxes or complex compliance requirements could alienate both businesses and the middle class, which forms a significant portion of the electorate.

 Key strategies for the New term:

1. Simplification of the tax law: As the government was able to bring in the Digital revolution with the advent of UPI, it is expected that the government will play a similar role in taxes by bringing in the Direct Tax Code. Bringing simplicity, transparency, reduction in compliance and digitalisation could be the next steps in tax regulations.

2. Digitalisation in taxes: Further strengthening of the faceless scheme, building a robust GST Network and fully utilising tax technology could be the game changer in next 2-3 years. 

3. Incentives to SMEs and Start-ups: Micro, Small, and Medium Enterprises (MSMEs) are the backbone of the Indian economy. The new government should introduce innovative and targeted tax incentives and simplified compliance procedures for startups and MSMEs to foster innovation and entrepreneurship.

4. Enhancing taxpayer’s services: Taxpayers are to be treated as someone who is value-adding to the growth of the country. They should be treated with respect. Hence, the level of service for resolution or being heard needs to be brought in. Ombudsmen should be present, especially when things become digital. A centralised and efficient centre for resolution is necessary.

5. Focus on Intellectual properties and Financial transactions: The new government should focus on bigger transactions, especially IPs and financial transactions. The Government should promote the creation of IP in India and not only consider it a manufacturing or service hub. This shift needs to be brought into the mindset of business owners and entrepreneurs.

Conclusion

As the BJP embarks on its new term with Narendra Modi at the helm, the strategies it adopts for taxation will play a pivotal role in shaping India's economic future. The journey ahead is fraught with challenges, but with the right strategies, the BJP can navigate the complex terrain of taxation, ensuring a robust and inclusive economic growth trajectory for the nation. Most important is the use of tax as a tool to regain popularity in the next election, where the seed of such a strategy needs to be sowed today.

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