In a developing economy like India, tax occupies a strategically important position in the overall development of the country due to its significant contribution to the national exchequer, which is ultimately spent on the overall development of different sectors of the economy. The budget for 1991-92 indicated a major effort toward correcting the fiscal imbalances and increasing the tax revenue through increase in the direct taxes. The study analyzes the impact of direct tax reforms on Indian economy in terms of various economic indicators and compares it with the pre-reform period. The study reveals that tax reforms introduced during the post-liberalization period could not generate the results as desired. The reduction in direct tax rates could not lead to better tax compliance in a much desired manner. Tax reforms have increased the number of assessees but the resultant increase in the tax revenue has not been sufficient. The major share of taxes comes from low income groups. This ineffectiveness will widen the gap between rich and poor and will lead to further inequality in the society. The rising arrears of taxes have further put a question mark on the efficiency and effectiveness of the tax collecting machinery. The widening fiscal deficit over the period will reduce investments in social sectors, like education and health. Therefore, there is again a very strong need to review the tax reform policies being followed in the post-liberalization period.

Taxation is a key tool of fiscal policy (Union Budget, 1991-92). In a developing economy like India, taxation policy has a crucial role in the overall policy scheme of the government. Tax occupies a position of strategic importance in the overall development of the country due to its significant contribution to the national exchequer, which is ultimately spent on the overall development of different sectors of the economy, such as defense, infrastructure, education, health, food security, etc. The main functions that an effective taxation system is supposed to perform are: to ensure collective savings for the purpose of public investment and at the same time to provide incentives for boosting private investment. Taxation is considered to be the most important for ensuring social justice both in equitably distributing the burden of development, and also for reducing inequality of incomes (Newlyn, 1977).

The main objectives of tax policies in a developing country like India should be: (1) Raising resources for productive investment in public sector; (2) Stimulating the growth forces in the private sector; (3) Maintaining a reasonable stability by controlling the inflationary pressure in the country; and (4) Reduction of extreme inequalities in distribution of income and wealth (Om, 1989). To meet the above objectives, in every budget of the government, the emphasis is always given to the stability of tax rates, rationalization of tax structure, widening of tax base for better compliance, simplification of tax laws and procedures, providing incentives for infrastructure development and promotion of the financial market, measures to curb tax evasion, revamping of the administrative set up of the tax department for improving efficiency, and correction of structural imbalances in order to make the tax system more elastic, equitable, vibrant and buoyant.

Public Finance journal, Direct Tax Reforms, Post-Liberalization Periods, Social Sectors, Financial Market, Infrastructure Development, Taxation System, Indian Economy, Macroeconomic Parameters, Pre-Liberalization Period, Gross Domestic Period, GDP, Economic Policy, Corporate Assessees.