The complicated structure and deficiencies of the Indian tax system and the way in which the taxes were administered were mind boggling. But the shortcomings were so prominent that it was easy to lay down the basic lines of reform and suggest the ultimate structure that the government should aim to bring into existence. The problem was to initiate the first steps and then recommend other measures in proper sequence so as to reach the final goal. In practice, the tax reform process encounters much opposition because of ignorance and inertia. Also, there are always losers and gainers when changes are to be effected and long-term gains are often overlooked because of fear of short-term losses. But the job had to be done because, as was pointed out earlier, the irrational and totally antiquated tax structure in the country was a stumbling block to accelerating the growth of the economy. It is to be said to the credit of the Central government of India that within a period of 3 years they have brought about very substantial reform of the structure of the Central taxes, although even in the Central sphere much remains to be done in the field of administration. Tax reform has barely started in the realm of the State governments.

The principles that have guided tax reform in India may be briefly stated as follows:

The above-mentioned principles or criteria laid down by the Tax Reform Committee were broadly accepted by the government. These principles have been generally applied in the reform of tax systems in many other countries. In the context of globalisation of Indian economy which the government wanted to promote, it was necessary to align the Indian tax system in important respects with those of our trading partners; and if India wanted to attract foreign investment, the rate of corporate profits tax could not be far out of line with those in countries competing for the same capital flows. Thus a regime of moderate rates had to be brought into existence for several important reasons. However, it must be pointed out that if the reforms suggested were fully implemented, there would not only be greater horizontal equity — which should be a great gain — but also a sufficient degree of vertical equity. In fact, if enforcement was strengthened, the actual degree of progression would perhaps be greater than under the previous regime. This assumes much more effective tax enforcement which would become possible due to the reform.