Tax reforms announced

In August 2009 India's government announced the first major overhaul of its tax system in almost 50 years. The plan aims to tackle widespread evasion and narrow the country's growing fiscal deficit. It will encourage greater compliance by lowering corporate and personal income tax rates, simplifying the rules and cancelling many exemptions.   The proposals, outlined in a discussion document released by Finance Minister Pranab Mukherjee  are focussed on direct taxes - i.e. taxes on the incomes of (natural and unnatural) persons, rather than indirect (e.g. sales and value-added) taxes.   Corporate tax rates on Indian companies will fall from 30 percent to 25 percent, and thresholds for personal income taxes will rise, reducing the number of taxpayers in top brackets. Branch profit taxes for foreign companies will also be substantially reduced.   If parliament supports the plan, the new code will take effect in April 2011.   Raising tax compliance, especially among small businesses and the informal...