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Introduction:

Tax policy plays a crucial role in shaping economic outcomes by mobilising resources and redistributing wealth. It serves as a tool for promoting inclusive growth and reducing inequality. Well-designed tax policies can contribute to sustainable development by ensuring equitable distribution of resources and fostering economic prosperity for all segments of society.

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Role of Tax Policy in Inclusive Growth and Equitable Distribution of Resources in India:

• Progressive Taxation: A tax system where higher-income individuals are taxed at higher rates compared to lower-income individuals. It aims to reduce income inequality by redistributing wealth to those who have lower incomes, thereby promoting greater economic fairness and social equity.
  For example: As of 2023, direct taxes, which include income tax and corporate tax, accounted for nearly 54% of total tax revenue, illustrating the role of progressive taxation in revenue generation.
• Indirect Taxes: GST is regressive, but exemptions and lower rates on essential goods help mitigate its impact on lower-income groups.
  For example: Basic necessities like raw food articles, including grains, vegetables, and unprocessed milk, as well as healthcare services, are exempt from GST, reducing the tax burden on the poor.
• Corporate Taxes: Fair corporate taxation funds social welfare programmes and infrastructure projects.
  For example: The reduction in corporate tax rates to 25.17% for existing companies in 2019 aimed to boost investment while maintaining revenue for social spending.
• Wealth and Property Taxes: Taxes on wealth and property can address wealth inequality by redistributing unearned wealth.
  For example: Proposals for reintroducing inheritance tax to address intergenerational wealth transfer issues.

Impact of Recent Tax Reforms:

• Goods and Services Tax (GST): Introduced in 2017, GST streamlined indirect taxes, reducing compliance costs and increasing the tax base. While GST improved tax collection efficiency, it faced criticism for being regressive and affecting small businesses.
• Corporate Tax Rate Cuts: The 2019 reduction aimed to stimulate investment and economic growth. Boosted business sentiment but raised concerns about revenue loss for social programmes.
• Income Tax Reforms: The new tax regime introduced in 2020 simplified tax slabs and reduced rates but required taxpayers to forgo exemptions.
  The Finance Act 2023 further reduced tax rates in the new regime to make it more attractive, with the highest tax rate reduced from 37% to 25%.
• Taxpayer’s Charter: The introduction of the Taxpayer’s Charter in 2020 aimed to build trust between taxpayers and the administration by ensuring fair treatment. 
• Faceless Taxation: Faceless taxation initiatives, such as faceless assessments and appeals, were implemented to enhance transparency, reduce corruption, and improve taxpayer services by minimising physical interactions between taxpayers and tax authorities.

Strategies to Balance Revenue Generation and Taxpayer Welfare:

• Broadening the Tax Base: Reducing exemptions and increasing the number of taxpayers can enhance revenue without overburdening current taxpayers. For example: As of 2023, India has approximately 6.77 crore individual tax returns filed, indicating a growing but still limited tax base in comparison to its population of over 1.4 billion.
• Targeted Social Spending: It involves allocating tax revenues to finance programmes that directly benefit specific groups, particularly those in need, such as healthcare, education, and social security.
  For example: Direct income support initiatives like PM-KISAN provide financial assistance to farmers, helping alleviate poverty and improve livelihoods. 
• Enhancing Tax Compliance: Simplifying tax procedures and improving taxpayer services can increase voluntary compliance.
  For example: Initiatives like faceless assessments and the introduction of a common income tax return form improve transparency and reduce evasion.
• Equitable Taxation Policies: Designing tax policies that do not disproportionately burden the poor while ensuring the wealthy contribute their fair share.
  For example: Implementing luxury taxes on high-end goods ensures that  wealthy contribute more without affecting basic goods.

Conclusion:

A well-structured tax policy is pivotal for promoting inclusive growth and equitable resource distribution in India. Recent tax reforms have significantly improved tax administration and compliance, but balancing revenue generation with taxpayer welfare requires continuous policy adjustments. Future strategies should focus on broadening the tax base, enhancing compliance, and using revenues effectively to support inclusive growth initiatives, thereby creating a more equitable society.

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