ssm@cmu-ri-leg.ARPA (Sesh Murthy) (03/28/85)
contd from previous message
Singh apparently was trying to assuage these fears when he promised that the
tax revisions would stay in effect several years at least. He said, for
example, that corporate taxes not only would be cut this year but also would
be cut further in the next three years.
''That's an important statement,'' said the Western economist. ''It
means that businesses can make plans knowing that there will be some
stability.''
As a result of the income tax changes, Singh said, there will be
only three million salaried individuals paying income taxes in India.
At present, four million pay income taxes. The number is small
because few people earn enough salary to be taxed and because
agriculture income - which is what most Indians earn - is exempt from
taxes entirely.
Like ''supply side'' economists, Singh projects that the tax cuts
will actually generate new tax revenues because of the economic
growth that is expected to result.
The theory behind the income tax cuts is a variation on this theme,
however. Singh and others hope that they will produce more honesty
among taxpayers, and that for the first time many of them will
actually pay their taxes now that the tax rate itself is lower.
The government proposes to accompany this incentive with a threat of
punishment, however. Special courts are to be established and new
efforts are to be made to prosecute tax evaders.
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In another step to encourage honesty, the government proposes to let
corporations make direct contributions to political parties,
something they have been barred from doing for more than 15 years.
Political experts say corporations make contributions under the table
anyway, so this change is intended to bring the process into the open.
These steps are all directed at reducing what is known in India as
the prevalence of ''black money,'' generated by illegal and illicit
activities. Such money has led to tax evasion, payoffs and widespread
corruption in government and politics.
One criticism of the proposed budget is its projected deficit of
about $3 billion in a budget of $37 billion. Some economists fear the
deficit will fuel inflation, but Singh said agriculture reserves and
other factors should curb rising prices.
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