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The Tax System in India: Could Reform Spur Growth?

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  • Ms. Hélène Poirson

Abstract

This paper assesses the effects of India's tax system on growth, through the level and productivity of private investment. Comparison of India's indicators of effective tax rates and tax revenue productivity with other countries shows that the Indian tax system is characterized by: (1) a high dependence on indirect taxes, (2) low average effective tax rates and tax productivity, and (3) high marginal effective tax rates and large tax-induced distortions on investment and financing decisions. The paper finds that the most recently proposed package of reforms would improve tax productivity and lower the marginal tax burden and tax-induced distortions. But firms that rely on internal sources of funds or face problems borrowing would continue to face high marginal tax rates.

Suggested Citation

  • Ms. Hélène Poirson, 2006. "The Tax System in India: Could Reform Spur Growth?," IMF Working Papers 2006/093, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2006/093
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    Cited by:

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    2. C Niranjan Rao, 2008. "The Role of Intellectual Property Rights in Information and Communication Technologies," Working Papers id:1742, eSocialSciences.
    3. International Monetary Fund, 2008. "Bangladesh: Selected Issues," IMF Staff Country Reports 2008/335, International Monetary Fund.
    4. Shafiq, M. Najeeb, 2015. "Aspects of Moral Change in India, 1990–2006: Evidence from Public Attitudes toward Tax Evasion and Bribery," World Development, Elsevier, vol. 68(C), pages 136-148.
    5. Muller, Nichole, 2007. "Indisches Recht mit Schwerpunkt auf gewerblichem Rechtsschutz im Rahmen eines Projektgeschäfts in Indien [Indian law with emphasis on commercial legal insurance within the scope of a project busine," MPRA Paper 6809, University Library of Munich, Germany.
    6. Jahangir Aziz, 2008. "Deconstructing China’s and India’s Growth: The Role of Financial Policies," Working Papers id:1714, eSocialSciences.
    7. Ghate, Chetan & Gopalakrishnan, Pawan & Tarafdar, Suchismita, 2016. "Fiscal policy in an emerging market business cycle model," The Journal of Economic Asymmetries, Elsevier, vol. 14(PA), pages 52-77.
    8. Fehr, Hans & Jokisch, Sabine & Kotlikoff, Laurence J., 2013. "The world’s interconnected demographic/fiscal transition," The Journal of the Economics of Ageing, Elsevier, vol. 1, pages 35-49.
    9. Jose Daniel Rodríguez-Delgado, 2007. "Safta: Living in a World of Regional Trade Agreements," IMF Working Papers 2007/023, International Monetary Fund.
    10. Гарабед Минасян, 2007. "Стратегически Елементи На Макроикономическата Политика В България," ERI-BAS Chapters, in: Митко Димитров (ed.), Студии за ускорено развитие на българската икономика, edition 1, chapter 1, pages 31-61, Bulgarian Academy of Sciences - Economic Research Institute.
    11. Ghosh, Saurabh & Gopalakrishnan, Pawan & Satija, Sakshi, 2019. "Recapitalization in an Economy with State-Owned Banks - A DSGE Framework," MPRA Paper 96981, University Library of Munich, Germany.
    12. Mr. Jahangir Aziz, 2008. "Real and Financial Sector Linkages in China and India," IMF Working Papers 2008/095, International Monetary Fund.
    13. International Monetary Fund, 2008. "Current and Proposed Non-Oil Tax System in Azerbaijan," IMF Working Papers 2008/225, International Monetary Fund.

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    Keywords

    WP; tax burden; firm; tax rate; excise; VAT;
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