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A report by Think Change Forum has urged the Union Budget 2026 to prioritise widening India's direct tax base, freezing peak tax rates and incentivising private investment to support growth and employment. Citing GST 2.0 reforms, it argues that tax simplification and moderation can deliver strong revenues without higher rates. The report highlights the narrow tax base, low investment despite rising corporate profits, and calls for technology-led compliance, targeted reinvestment incentives, GST expansion to key sectors, and stronger action against tax evasion and illicit trade.
Policy choices around the Union Budget 2026 are expected to play a key role in shaping India's growth and employment outlook, with a new report calling for a sharper focus on widening the direct tax base, encouraging private investment and maintaining stability in peak direct tax rates. The report underlines that taxation policy should support long-term expansion rather than restrict economic ambition. Advertisement
According to the study, recent changes under GST 2.0 have shown that tax simplification and moderation can go hand in hand with healthy revenue growth. This experience challenges the traditional view that higher tax rates are essential to boost government collections. The report argues that predictable and moderate taxation can strengthen compliance and expand the tax base organically.
The analysis, prepared by think tank Think Change Forum, presents a six-point advisory for policymakers. It recommends extending the core principles of GST reforms to direct taxes, enforcement practices and investment policies. A key suggestion is to freeze peak direct tax rates to provide certainty and shift revenue mobilisation towards base expansion instead of rate increases.
The report highlights the narrowness of India's direct tax base, pointing out that only around 2.5-3 crore individuals are effective taxpayers in a population of about 140 crore. It stresses the need to improve the tax-to-GDP ratio through technology-driven integration of GST data, income tax records and high-value consumption indicators, rather than relying on higher rates.
It also draws attention to an emerging investment paradox. While corporate profitability has risen over the past decade, investment-to-GDP ratios remain well below levels seen before 2011. The report notes that a growing share of corporate profits is being diverted to financial assets instead of productive capacity, which has limited job creation.
To address this, the report suggests targeted tax incentives to encourage reinvestment of profits into manufacturing, research and development, and employment-generating assets. It also recommends completing the GST input tax credit chain and avoiding MRP-based taxation once the compensation cess period ends.
Further, the report calls for a phased roadmap to bring petroleum, electricity and other excluded inputs under GST. According to the analysis, this would restore tax neutrality and reduce cascading costs for businesses. Strengthening enforcement against smuggling, illicit trade and tax evasion is also flagged as critical, so that non-compliance becomes more expensive than compliance and compliant taxpayers are not disadvantaged.
Overall, the report argues for a distinct Indian taxation approach that blends traditional principles of moderation with modern economic thinking, focusing on fairness, certainty and sustainable growth rather than short-term revenue extraction.
Source PTI
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