Tax system has to be friendly to taxpayer: Jaitley

India is moving towards a tax-friendly regime to erase the "bad name" it has earned over the years, Finance Minister Arun Jaitley said Thursday.

"Our tax system has to be friendly with tax payers and that is what we are trying to do step by step," he said, replying to a debate on tax evasion and black money in the Lok Sabha.

Calling for a tax structure which discourages evasion, he said there was a misconception that high tax rates bring in higher revenues.

"High tax rates do not necessarily mean more revenue collection .The direct and indirect tax rates have to be brought to reasonable level so that the basket increases and there is no incentive for evasion," Jaitley said.

"Those who have to pay taxes must pay taxes. Those who do not have to pay taxes, merely by raising demands does not serve any purpose as these get stuck up in courts. We cannot allow tax evasion or avoidance," he added.

The finance minister said that taxation should be reasonable so that government expenses can be met, while the tax base increases and there is no evasion.

Jaitley's call for a tax friendly regime comes a day after Attorney General Mukul Rohatgi said he has asked the IT department not to appeal against the Bombay High Court ruling that Vodafone is not liable to pay an income tax demand of Rs.3,200 crore.

Last month, the court had ruled in favour of the Indian subsidiary of Vodafone Group in two cases of transfer-pricing adjustments of over Rs.4,500 crore made by the income tax department.

Last week, the Bombay High Court ruled in favour of the Indian arm of Royal Dutch Shell on two transfer-pricing adjustments made by the income tax department -- of Rs.15,000 crore and Rs.3,000 crore for 2007-08 and 2008-09, respectively -- to the taxable income of Shell India Markets Pvt Ltd (SIMPL).

Meanwhile, the Federation of Indian Chambers of Commerce and Industry (FICCI) has welcomed the Attorney General's advice to the I-T department not to file an appeal in the Vodafone case.

"India has the largest number of transfer pricing disputes globally and quick resolutions are critical to building investor confidence. Fair taxation principles and administration, and clear dispute resolution when necessary, soothe a key anxiety amongst all investors," FICCI said in statement here.