How stable tax rules can rebuild business trust and boost growth

India’s tax system is going through a major shift. For many years, both global and domestic investors viewed India’s tax environment as confusing, unpredictable, and sometimes even hostile. But a recent speech by the Central Board of Direct Taxes (CBDT) chairperson at the OECD’s Paris centre shows that the government now wants to send a very different message—one based on trust, transparency, and partnership. This change in tone is not just symbolic; it is meant to reshape how India is seen in the global investment world.

For decades, India’s tax machinery was known for complex laws, unclear drafting, heavy compliance rules, and a large volume of disputes. These issues created fear among investors, and the infamous retrospective tax amendment of 2012 became the clearest example of policy uncertainty. It showed that laws could be changed backward in time, making long-term investment very risky. This one event damaged India’s reputation for years.

But today, the government wants to replace scepticism with confidence. The CBDT chairman spoke about a new tax philosophy built on simplification, technology, and trust. This also supports Finance Minister Nirmala Sitharaman’s message in the 2025 Budget: “Trust first, scrutinise later”. The new approach aims to repair old wounds and position India as a stable, reliable tax jurisdiction.

Administrative reforms are changing the system

One of the biggest changes has come through administrative modernisation. India introduced the faceless audit and faceless appeal systems, which reduce direct interaction between taxpayers and tax officers. This has helped lower the chances of harassment and increased transparency. Along with this, data-based systems like pre-filled income tax returns and the Annual Information Statement have made compliance simpler for ordinary taxpayers.

The government is also working on the New Income Tax Act, 2025, which will be half the size of the current law and written in plain, easy-to-understand language. This reform aims to remove unnecessary complexity and improve clarity for both citizens and businesses. The main idea is to build a relationship of mutual respect rather than one driven by fear of the tax department.

Another strong area of progress is dispute prevention. India’s Advance Pricing Agreement (APA) and Mutual Agreement Procedure (MAP) mechanisms have become more efficient and more widely used. These are important for multinational companies because they help avoid long, expensive tax disputes, especially in transfer pricing cases. The APA programme has grown so much in effectiveness that India recently received an international award on Certainty Day.

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India is also engaging more closely with global institutions such as the OECD, Forum on Tax Administration, and MAP Forum. This helps ensure that India’s tax rules stay aligned with global best practices while still protecting national interests. At the same time, India remains active in the UN Intergovernmental Committee on Tax, where developing nations have a stronger voice.

These reforms show that certainty is becoming a priority. In global business, predictability is often more important than tax rates themselves. When investors know the rules will remain stable, they are more willing to commit funds for the long term.

Remaining challenges that must be addressed

Even with these improvements, several challenges remain. There is still a gap between the smooth, technology-driven system promised by policymakers and the reality some taxpayers face on the ground. Sometimes taxpayers still meet bureaucratic hurdles or delays that create frustration. A recent comment by a senior tax official—advising a field officer to “not behave like James Bond”—shows that old habits have not fully disappeared.

India must also balance global cooperation with protecting its sovereign right to tax. Many developing countries, including India, worry that global proposals like the OECD’s two-pillar solution for digital taxation may limit their ability to tax digital companies effectively. Although India works closely with global bodies, it must continue to voice concerns where needed to safeguard national interests. These issues require careful negotiation, technical discussions, and diplomatic efforts.

Another challenge is ensuring that tax certainty reaches all sectors and all regions, not just large multinational companies. Small businesses, startups, and ordinary taxpayers must feel the same level of trust and stability. A confident tax system works only when every stakeholder—big or small—experiences fairness and clarity.

Finally, India must maintain consistency. The journey from “certainty” to “confidence”, as the CBDT chairman said, requires disciplined continuity. Frequent policy changes, inconsistent enforcement, or unexpected shifts can undo years of progress. Only when reforms remain steady and predictable will India shed its old image of a difficult tax environment.

A new direction built on trust

India is clearly trying to move away from the legacy of unpredictable tax policies and towards a future defined by clarity and fairness. The CBDT chairman’s leadership and the government’s reforms have brought the country closer to global standards of tax governance. The focus on technology, dispute prevention, and international cooperation shows a serious commitment to change.

But the real transformation will be visible only when investors and taxpayers no longer carry the old scepticism in their minds. Confidence is not built overnight; it is built through consistent behaviour, transparent laws, and respectful administration. If India can maintain this direction, it will earn a reputation as a predictable, investor-friendly, and globally competitive tax jurisdiction.

The shift from tax uncertainty to tax confidence marks not just an administrative reform, but a cultural change in how the state interacts with citizens and businesses. And that change, if sustained, can have a deep and lasting impact on India’s economic future.