Skip to main content

IMF recipe for fiscal consolidation in India: Higher personal income tax, lower corporate tax

By A Representative
The International Monetary Fund (IMF), the world’s powerful banker, has strongly favoured a sharp rise in personal income tax in India, even as simultaneously bringing down corporate taxes. In a policy paper released this month, the IMF believes this is one of the major steps Government of India requires to take in order to bring about fiscal consolidation.
Released by IMF’s office of the executive director, and authored by Rakesh Mohan and Muneesh Kapur, the paper, titled, “Pressing the Indian Growth Accelerator: Policy Imperatives”, says, “A comparison of India with Organization of Economic Cooperation and Development (OECD) countries indicates that the corporate tax revenues in India are higher than in the OECD (3.6% to GDP versus 3% in 2011)."
In contrast, it adds, "The personal income tax revenues in India are found to be significantly lower than OECD (1.8% to GDP versus 8.5% in 2011.” OECD is the international forum of developed countries meant to consult each other on economic issues facing the world.
The IMF’s policy paper acquires significance, as it comes close on the heels of the new Union budget, which has sought to be lower corporate tax to 25 over the next five years. The paper was released just ahead of IMF managing-director Christine Lagarde’s meeting with Prime Minister Narendra Modi on March 16.
The authors say, “Low income levels in India can partly explain the relatively low personal income tax collections in India”, yet insist, “It appears that the income tax rates are also notably lower in the Indian context. This is true for both the peak income tax rate as well as the income thresholds at which the various tax rates kick in.”
Giving example, the authors say, “The peak income tax rate in India was 30% in 2013, whereas it averaged 36% in the OECD countries; in as many as 15 OECD countries, the peak personal income tax rate was 40% and above. Also, the minimum income tax rate averages 10% in the OECD countries vis-à-vis zero on India, although this specific comparison is complicated by differences in basic exemptions and credits across countries.”
Turning to the income thresholds levels, the authors say, “The peak income tax rate in India is applicable to annual incomes of Rs 1 million and above, i.e., almost 11 times the per capita income in 2013. The corresponding OECD average was 4 times the per capita income.”
They further say, “As regards corporate taxes, the Indian tax rate is somewhat higher than that in the OECD countries”, complimenting the recent Government of India move in the Union budget 2015-16 for addressing “this issue through reduction in the corporate tax rate to 25% over the next four years, accompanied with rationalization and removal of various exemptions and incentives.”
Arguing in favour of sharply increasing the personal income tax net, the authors say, “The category of taxpayers with incomes above Rs 1 million normally gets substantial dividend income, which is currently tax-free in the hands of the investor as the company distributing dividend pays dividend distribution tax at the rate of 15%.”
Hence, according to them, the need is for taxing such “high income individuals”, who are currently taxed at a “lower overall effective marginal rate than those having little or no dividend income”. They argue, “The need to focus on expanding this category of taxpayer base, therefore, is crucial.” This could be done by raising the “the peak income tax rate in India of 30%” which is “well-below that in the OECD countries.”

Comments

TRENDING

Wave of disappearances sparks human rights fears for activists in Delhi

By Harsh Thakor*  A philosophy student from Zakir Hussain College, Delhi University, and an activist associated with Nazariya magazine, Rudra, has been reported missing since the morning of July 19, 2025. This disappearance adds to a growing concern among human rights advocates regarding the escalating number of detentions and disappearances of activists in Delhi.

How community leaders overcome obstacles to protect forests and pastures in remote villages

By Bharat Dogra  Dheera Ram Kapaya grew up in such poverty that, unable to attend school himself, he would carry another boy’s heavy school bag for five kilometers just to get a scoop of daliya (porridge). When he was finally able to attend school, he had to leave after class five to join other adolescent workers. However, as soon as opportunities arose, he involved himself in community efforts—promoting forest protection, adult literacy, and other constructive initiatives. His hidden talent for writing emerged during this time, and he became known for the songs and street play scripts he created to promote forest conservation, discourage child marriages, and support other social reforms.

‘Act of war on agriculture’: Aruna Rodrigues slams GM crop expansion and regulatory apathy

By Rosamma Thomas*  Expressing appreciation to the Union Agriculture Minister for inviting suggestions from farmers and concerned citizens on the sharp decline in cotton crop productivity, Aruna Rodrigues—lead petitioner in the Supreme Court case ongoing since 2005 that seeks a moratorium on genetically modified (GM) crops—wrote to Union Minister Shivraj Singh Chouhan on July 14, 2025, stating that conflicts of interest have infiltrated India’s regulatory system like a spreading cancer, including within the Indian Council for Agricultural Research (ICAR).

The GMO illusion: Three decades of hype, harm, and false hope

By Sridhar Radhakrishnan  Three decades of hype, billions of dollars spent, and still no miracle crop. It's time to abandon the GMO biotech fairy tale and return to the soil, the seed, and the farmer. “Trust us,” they said. “GMOs will feed the world.” Picture a world where there is plenty of food, no hunger, fields grow without chemical pesticides, children are saved from malnutrition, and people live healthily.

Overriding India's constitutional sovereignty? Citizens urge PM to reject WHO IHR amendments

By A Representative   A group of concerned Indian citizens, including medical professionals and activists, has sent an urgent appeal to Prime Minister Narendra Modi, urging him to reject proposed amendments to the International Health Regulations (IHR) before the ratification deadline of July 19, 2025. 

Sandra Gonzalez Sanabria: An inspiring life from Colombia’s Amazonian valley

By Vidya Bhushan Rawat*  In the village of Héctor Ramírez, known as Agua Bonita, in La Montañita, Caquetá, Colombia, a vision of peace and renewal is unfolding. In the pre-2016 period, this would have been nearly impossible for outsiders to visit, as it was the epicenter of violent resistance against state oppression. However, after the Peace Accord was signed between the Colombian government and former revolutionaries—marking the end of a 70-year insurgency that claimed over 400,000 lives until 2025, including civilians, rebel fighters, and security personnel—things began to change. Visiting Agua Bonita during the Global Land Forum in Bogotá revealed a village of hope and resilience. Former FARC revolutionaries have settled here and transformed the village into a center of peace and aspiration.

Indigenous Karen activist calls for global solidarity amid continued struggles in Burma

By A Representative   At the International Festival for People’s Rights and Struggles (IFPRS), Naw Paw Pree, an Indigenous Karen activist from the Karen Human Rights Group (KHRG), shared her experiences of oppression, resilience, and hope. Organized with the support of the International Indigenous Peoples Movement for Self-Determination and Liberation (IPMSDL), the event brought together Indigenous and marginalized communities from across the globe, offering a rare safe space for shared learning, solidarity, and expression.

Activists allege abduction and torture by Delhi Police Special Cell in missing person probe

By A Representative   A press statement released today by the Campaign Against State Repression (CASR) alleges that several student and social activists have been abducted, illegally detained, and subjected to torture by the Delhi Police Special Cell. The CASR claims these actions are linked to an investigation into the disappearance of Vallika Varshri, an editorial team member of 'Nazariya' magazine.

India’s zero-emission, eco-friendly energy strategies have a long way to go, despite impressive progress

By N.S. Venkataraman*   The recent report released by OPEC’s World Oil Outlook 2025 has predicted that by the year 2050, crude oil would replace coal as India’s key energy source. Clearly, OPEC expects that India’s dependence on fossil fuels for energy will continue to remain high in one form or another.