Question 1 · 10 marks · 228 words written
Opening · a definition
Tax buoyancy is defined as the change in tax revenue collection with change in rate structure while tax base is defined as the number of taxpayers in proportion to total population of the country.
Body · points and prose
Recent proposals to reform tax structure ↳ announced in Budget 2025-26 ↳ no tax on annual incomes upto 12 lakh ↳ Rate rationalisation according to incomes ↳ One time relief on all tax disputes upto 25 k.
Recent proposals will help improve tax buoyancy and base
- More adherence to tax payment. Due to tax savings eg upto 80 thousand tax savings estimated
- Increasing ambit of tax payers by preventing tax evasion.
- Increased compliance of payments due to simplified payment framework eg ITR filling - pre-filled
④ More disposable income will cause more spending and increase in indirect tax collection. (GST)
⑤ Decreasing legal disputes with tax dept will increase productivity in tax compliance matters.
Some challenges remain
① Potential of savings may increase due to uncertain geo-political world order.
② Tax evaders may still find loopholes to evade tax payment.
③ Increase in spending may not be in capital goods.
④ Need of big data analytics to understand impact of tax rate rationalisation.
Close · a summary
These tax reforms have brought relief to the middle class and is expected to increase tax revenue via efficient use of AI and improved vigilance to prevent evasion.