Finance Minister Nirmala Sitharaman’s recent tabling of the Income Tax Bill, 2025, marks a significant shift in India’s tax landscape. The government claims the bill simplifies compliance, reduces ambiguity, and modernizes the tax system. However, while the effort to de-clutter tax laws is commendable, the bill fails to address key concerns that directly impact consumers, particularly regarding tax predictability, dispute resolution, and incentives for economic growth.

The government promoted the new bill as a victory for simplification, fewer words, forty per cent reduced redundancy of provisions and a streamlined structure overall. The replacement of “assessment year” with “tax year” aligns the Indian system with global norms, promising much-needed clarity for taxpayers and businesses. But below this new coat of paint lies the same rust. The bill does not truly significantly overhaul the tax structure. Plenty of provisions from the 1961 act remain intact under new labels, forcing taxpayers to navigate through a maze of cross-references. Words don’t cut complexity, especially if the system remains convoluted.

Tax Litigation remains the biggest headache for Indian taxpayers, with unresolved disputes piling up to 13.4 trillion rupees as of March 2024. Yet, the new bill makes no major attempts to introduce a fast-track dispute resolution model to address the pressing issue. For instance the UK’s Alternative Dispute Resolution (ADR) System provides taxpayers and authorities room to negotiate, removing expensive legal proceedings and clearing backlogs. A similar model can be implemented in India to reduce judicial backlog and boost the confidence of taxpayers.

Foreign investors remain wary of India’s tax system due to its unpredictability. The bill does little to change that; it fails to introduce effective mechanisms to address complicated cases, such as the Rs 1.4 billion tax demand against Volkswagen, which exemplifies the perils of prolonged tax disputes. If India wants to stay relevant and maintain its competitive edge, it must offer a framework that is not just simplified on paper but also predictable, stable, and fair enough to attract investors. For a nation aspiring to be a global tech hub, the new Income Tax Bill fails to support start-ups and innovation driven sectors.

The USA, for example, promotes investment through R&D tax credits, encouraging growth in emerging industries. Singapore goes a step further with generous tax exemptions to start-ups allowing them to reinvest in job creation and expansion. Yet, India’s new bill keeps a rigid framework, providing no meaningful incentives or financial push for budding start-ups. If innovation is the goal, the tax system needs to fuel it, not stifle it. The bill also misses a crucial opportunity to promote green energy. Tax incentives could have encouraged investment in renewables, making India a leader in clean technology. Instead, it remains silent on how taxation can drive sustainable consumer choices, another lost chance to align policy with progress.

The Income Tax Bill 2025 is definitely a step towards tax simplification, but it should not come at the cost of overlooking key economic drivers, innovation incentives, investor confidence, and dispute resolution. The system remains a roadblock rather than a catalyst for growth. If the government wants to empower businesses and consumers, it must ensure tax laws are enablers of economic growth rather than an administrative burden. India has the opportunity to create a transparent, efficient, and globally competitive tax system. However, in its current form, the new tax bill risks being more of a cosmetic update rather than the structural reform India truly needs. If policymakers aim to make India an attractive destination for investment and economic prosperity, they must go beyond word count reductions and focus on real, substantive change.

Originally published here

The GST Council (Goods and Service Tax) recently announced a bewildering array of extra tax rates for popcorn, sparking an understandable backlash among economists, businesses, and consumers alike. Salted and spiced popcorn is taxed at 5 per cent if loose, 12 per cent if prepackaged and labelled, and 18 per cent if caramelized. While intended for clarity, this new classification has done more harm than good, causing confusion, adding up needless compliance costs, and leaving consumers bearing the brunt of the damage in the form of higher prices and fewer choices. 

The GST system was introduced with the promise of a “Good and Simple Tax.” Yet decisions like this demonstrate how far it has deviated from that vision. Former Chief Economic Adviser K.V. Subramanian aptly summarized the situation: “Complexity is a bureaucrat’s delight and citizens’ nightmare.” The popcorn tax serves as a perfect example of this. A simple grocery store or movie theatre purchase now comes with a dilemma. Is the popcorn pre-packaged? Is it salted or caramel? Each of these questions determines the tax rate and, ultimately, what consumers pay at the counter. These convoluted policies hit the middle and lowerincome groups the hardest, where a small price hike on household essentials can significantly impact budgets.

As one social media user pointed out, this could pave the way for taxing entire restaurant menus differently based on ingredients. Such granular taxation complicates compliance and restricts consumer freedom by penalizing certain choices over others. Moreover, this fragmented approach disproportionately affects small businesses. Smaller popcorn manufacturers and vendors, already operating on thin margins, now face additional compliance burdens. For many, this could mean passing costs onto consumers or shutting down altogether, further reducing options in the market. The popcorn tax exposes a deeprooted issue within India’s GST structure: the strong obsession with micromanagement and over-classification. Taxation should be neutral, refraining distortions that favour one service or product over another. Instead, policies like these fail to regard consumers, the very individuals the tax system is meant to serve.

The GST Council’s decision also raises concerns about transparency and accountability. While the Council justifies that caramel popcorn falls under the “sugar confectionery” category, critics highlighted the inconsistencies in its classification rationale. For instance, previous rulings on similar products have applied lower tax rates despite the presence of added sugar. The popcorn tax isn’t just about popcorn; it’s a symptom of underlying issues plaguing India’s GST system. It highlights the need for a transparent, simplified, and consumercentric tax regime that emphasizes fairness and minimizes bureaucratic complexity. India’s popcorn tax fiasco is not without precedent. Positive examples from other countries highlight how unnecessary India’s GST policy is. New Zealand’s Goods and Services Tax system is often hailed as one of the simplest in the world. Unlike India’s fragmented approach, New Zealand applies a flat GST rate across almost all goods and services, with very few exemptions. This simplicity reduces compliance costs for businesses and ensures that consumers are not burdened with hidden or arbitrary price hikes. The contrast is stark. Where India’s GST causes confusion and inefficiency, New Zealand’s straightforward model fosters fairness and transparency. 

The lesson is simple: a streamlined tax system benefits everyone from businesses and policymakers to consumers. The popcorn tax, criticized by industry experts and economists, is just another example of how complex classifications can stifle consumer choice. Indian policymakers should take notes from New Zealand’s playbook. By removing excessive classifications and simplifying tax rates, GST can finally live up to its promise of being a “Good and Simple Tax.” Until then, consumers will bear the brunt of a system that favors bureaucracy over practicality.

Originally published here

Large sodas, alcohol, and tobacco are just a few things governments around the world want to keep us away from. It seems governments worldwide have embraced what economists call “sin taxes” — taxes on goods considered harmful to society, like sugary drinks, tobacco, and alcohol — as both a quick fix to budget imbalance and to preserve public health. Now, as India’s Group of Ministers (GoM) considers hiking the Goods and Services Tax (GST) on these so-called sin goods to 35 per cent, there’s much to dissect about the real impact of such measures. The idea behind a sin tax is pretty straightforward: make harmful products more expensive, so people buy less of them. 

It’s about nudging us away from bad habits while boosting government funds. Take a moment to think about where that tax-generated revenue goes and whether taxes actually work. If people quit consuming these goods, the revenue dries up raising questions about whether these taxes are really about public health or just a convenient cash grab. In an ideal world, these funds would be redirected to improve public health systems, offsetting the costs associated with the consumption of these very goods. However, the reality can be far messier.

The research (Taxing Sin by Michael Thorn, 2021) suggests that these taxes fail to reduce consumption. Instead, they hurt consumers from lower income brackets, who spend a larger chunk of their income on these goods. These taxes often contribute to the growth of black markets. The artificial price hike by the government simply pushes consumers to find alternatives, often in illicit ways, instead of quitting. And while sales on the books may drop, actual consumption might not fall as much as intended. Another layer to this issue is its social impact. Sin taxes are regressive.

Studies (The Quarterly Journal of Economics) suggest that poorer consumers spend a bigger chunk of their income on taxed goods like cigarettes and sugary drinks. This means they bear a disproportionate share of the burden, potentially deepening the societal divide these taxes are meant to bridge. Tax hikes as public health measures often backfire psychologically. Research indicates that people feel more resentment towards price hikes due to taxes than other market forces. This resentment leads to noncompliance, fuelling black markets and causing government distrust among the public. Globally, implications of sin taxes show mixed results. Studies (American Journal of Health Promotion) reveal the severe gaps in policies fuelling illicit trade and broadening economic inequality among consumers. These studies underline that while sin taxes can reduce consumption and support public health goals, they must be carefully balanced against their broader socio-economic impacts. Consumers deserve better. 

It’s time to challenge the policies that undermine choice under the pretence of public health. A progressive society isn’t built on punitive taxes but on allowing people to make their own choices. Policymakers must acknowledge freedom and not undermine it. Policymakers must craft strategies that are not just economically sound but also ethically justifiable and psychologically understood. After all, the aim is to improve public health without infringing unduly on personal freedom or aggravating socio-economic imbalance. As citizens, we must demand accountability and transparency. 

The argument isn’t about just sin goods; it’s about our right to make choices without government intervention. Engaging in this dialogue is vital to ensuring that tax policies align with our values of freedom, fairness, and consumer choice, promoting a healthier and more equitable community for all.

Originally published here