Reduced taxes in India

More than one expatriate Indian businessman has pulled us aside to explain his feeling of economic exile. The high taxes, entry obstacles for foreign partners, import restrictions etc. all make it difficult to do business at home. So they make their fortunes overseas, send money back to their parents and dream of an India freed of zero-sum economics. That day may be moving a little closer. Finance Minister P. Chidambaram has grasped the taxation nettle.

In a country where only one percent of India's 950 million people are assessed by the taxman, the income tax rates for India's three income brackets will be brought down 10 percentage points to 10, 20 and 30 percent. Corporate tax will come down to 35 percent from 40.

When taxes are too high it becomes worthwhile for people to look for ways around them. Governments that reduce their rates to more reasonable levels also reduce the incentives for fraud. In Hong Kong they have perfected that principle. There are effective top payroll rate of just 15 percent has yielded bountiful surpluses, so much so that the government is able to exempt almost two-thirds of its working population from paying any income tax at all.

-- Far Eastern Economic Review, Hong Kong