Reforming the Tax Base for Economic Development

Tax reform has been an integral part of the economic reforms of most countries that have undertaken structural adjustment programmes. Even in the developed countries, tax reforms have been a prominent feature during the 1980s. One of the important reasons impelling governments of the developing countries embarking on economic reform programmes to undertake tax reform has been the need to cut the fiscal deficit through higher growth of revenues. That is perhaps also the reason why multilateral agencies supporting structural adjustment programmes have usually insisted on tax reform. But in most developing countries including India thoroughgoing tax reform was needed in order to improve the efficiency of resource allocation, to remove obstacles to the smooth flow of business activities, to minimise costs and to improve the equity of the system. Improvement in equity was needed not merely for its own sake, but also for encouraging tax compliance.