India rejects agriculture tax despite fiscal impact

Subject

Taxation on agricultural income.

Significance

Controversy has broken out in the NITI Aayog, India’s official economic policy think tank, over the levying of tax on agricultural incomes that are currently exempt. The issue addresses the country’s low tax-to-GDP ratio, which limits state spending capacity. It also addresses the declining ratio of direct-to-indirect taxes, which fosters socio-economic inequality. Finance Minister Arun Jaitley has already pre-empted protests by saying he has no immediate plans to impose an agricultural income tax.

Impacts

• The expansion of the Aadhar scheme will fuel fears about the emergence of a surveillance state.
• The government’s embrace of technological solutions promises vast opportunities for IT services firms.
• Policy focus on indirect taxation will exacerbate wealth inequality.