Wednesday, 10 April 2013

Financial reforms: The long road to becoming a Super Power

There has been a long list of financial sector reforms in India and much of the impact will actually be felt some time down the line. There might be some initial enthusiasm as the various steps in reforming the financial sector are announced but the real benefit is actually going to come only later.  The introduction of the Goods and Services Tax (GST) or the Direct Tax Code (DTC) and even pension sector reforms will ensure that the financial landscape of the future is completely different from what is actually witnessed right now.

A big area as far as the financial sector is concerned is that of taxation and there have been two major steps in this direction that will change the nature of the tax system in the country. On the direct taxes side is the proposed DTC which is expected to make the tax guidelines simple and easy to understand and implement. Currently the Income Tax Act is so complicated that it is difficult for many people to actually understand what it stands for and how this is to be implemented. Various drafts of the DTC have been proposed and even in the recent Union Budget the finance minister talked of introducing the bill in Parliament as soon as possible. This will reform the manner in which the direct taxes are calculated and collected. Simplicity will lead to higher compliance in the years ahead boosting the total revenue collections making more money available for use to improve the nation. Another fact is that several measures present in the DTC code have already been introduced in the current income tax act making the enjoying of these facilities easier for the individual in their day to day operations.

The other game changing event is the introduction of the GST across the country. Today the entire landscape is dotted with lots of indirect taxes like excise, sales tax, octroi, service tax etc that increase the tax burden on the final consumer. There is also no uniformity in the process as the situation can change from state to state. This will be replaced with a single GST across the country which will make the process smooth as there can be credit taken for the inputs that are used in the providing of the goods and services. This will ensure that there is a proper way in which the process is completed as it will eliminate all the multiple taxes that are currently witnessed and replace this with a single tax. The states are working out the details that include some of the sticky points related to the implementation of the new system but there is headway being made and this is the good news for the economy. This will ensure that doing business is easier leading to higher economic activity across the nation in the coming years.

There are various sectors in the economy that are important for the future well being of the citizens. The bill to regulate the pension sector is a move in the right direction as it will ensure that this nascent sector is able to get the required support for its growth. With the changing landscape across the country and the world it is no longer possible for the government or even private entities to guarantee pension for individuals in their old age. This is the reason why people have to look for options on their own to ensure that these facilities are available to them by saving and investing over a period of time. The right measures as provided by the pension bill and the expansion of the National Pension Scheme (NPS) will be a way in which more and more individuals will have a choice in front of them to save for their future. It will also ensure that over a period of time they are able to secure their future to a greater degree with confidence.

(The writer is a certified financial planner)


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