The taxation policy that existed in

India between 1950&1990 had a number of defects which defeated many objectives of taxation policy. In the opinion of TRC (Tax reform Committee)Indias tax system has grown over time to become inefficient, difficult to administers. Some of the defects are :

 Very high tax rates-Central tax rates in India were much higher compared to the average tax rates in comparable countries.

Tax system of cascading nature- It means taxes piling on taxes and tax on tax so that the actual tax burden borne by the society is much higher than one calculated on the basis of tax rates.
Administratively complex tax system- complex even to be understood by administer.

Anomalies in individual taxes- Apart from pointing out the defects in the tax system TRC pointed out the anomalies in the individual taxes

3 MAJOR TAXES
PERSONAL INCOME TAX It has serious anomalies and inequities. ANOMALIES- It provides tax shelters to the members of parliament, Central Govt Ministers, a section of Government officials and top executives of Private Firm by living their perks tax free. INIQUITOUS : It descriminates between diffferent categories of Tax Payers.

IMPORT DUTIES
According to TRC it had the following anomalies: 1. The average rate of Import duties was much higher than international standards. 2. Tarriffs were widely disperrsed and complex. 3. Import Tariffs had a multiple rate system

EXCISE DUTIES
The largest contributor to the central revenue and the following defects: 1. It is of cascading nature as it makes the same commodities taxable at different stages of production 2. Excise Duty fell also on capital goods like machinery tools etc. 3. The excise concession for small and tiny sector encouraging manipulation of firms size for the purpose of tax evasion

TAX REFORMS IN 1991

PERSONAL INCOME TAX

In this, rates structure has been reduced from about 6 slab rates in 1980 to 3 slab rates: 10%, 20% and 30%. Personal Income tax exemption limit is raised almost in every budget on the basis of inflation rate for different categories of Income Tax payers.

COMPANY INCOME TAX

It has been reduced to 40% for

domestic and 45% for foreign companies.

EXCISE DUTIES ON MODVAT

The number of classifications of

commodities under tax laws has been reduced. The procedure of Excise calculation has been simplified. The process to replace excise duties with MODVAT is underway.

IMPORT DUTIES
The duty rates have been slashed across the

board so that the weighted average effective rates comes down from 85% to 45% and then to 25% in 2006 2007 budget.