New Delhi [India], July 16 (ANI): Former Vice Chairman of Niti Aayog Arvind Panagariya on Tuesday said that India must encourage wealth creation by lowering income tax rates and surcharge if it aspires to become a five trillion dollar economy in the next five years.
The Budget 2019 proposes to increase the surcharge on individuals with a taxable income of Rs 2 crore to 5 crore to 25 per cent and for those earning more than Rs 5 crore to 37 per cent. This will lead to an effective tax rate of 39 per cent and 42.7 per cent -- among the highest in the world -- for the two groups.
"We should find an alternative source of revenues instead of raising the tax rate to such high levels," he said in an interview to ANI. "We all should pay tax to the nation, but the tax structure should also be fair."
Panagariya said India's experience of abnormally high tax rates in the 1970s did not deliver any good outcome. "We wisely began to reform our tax rates in 1990s. We cut them very significantly overtimes."
Panagariya, who is a professor at Colombia University in New York, said the country must encourage wealth creation. However, he said more clarity is needed on the new tax proposals.
Panagariya appreciated the government's announcement to keep the fiscal deficit at 3.3 per cent. He said the decisions to raise foreign direct investment (FDI) limits in aviation, media, and insurance are a big step in the right direction.
"I think raising FDI limit in aviation has been announced keeping Air India in mind. Disinvestment in Air India does not mean that the airline will not remain associated with India. Austrian Airlines is owned by Lufthansa, but everybody knows that it is the airline of Austria. So Air India will always be identified with India."
Panagariya said it is time that the government gets a credible buyer for the airline so that its service improves and the burden of public taxpayers is reduced considerably.
"Opening up other areas for foreign investments is an extension of the existing policies. These are steps in the right direction," he said.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)