Friday, July 24, 2009

Unburdening the Indian Tax Payer - I

Even after over six decades of our independence none of our finance ministers, known to be financial wizards have been able to simplify the system of taxation in India. The result of defective system is now so visible in the country that we have developed a black economy perhaps unparalleled in any country in the world. The ill-effects of the system have been of such enormous proportions that we have become a country of scamsters from top to the lowermost rungs of our leadership and bureaucracy. They have often been shamelessly exposed in front of their countrymen without any positive results. To be precise our totally anti-people, harsh and complicated system of taxation over a very narrow base has proved undoing of our otherwise flourishing economy.

I would appeal to our worthy finance ministers past and present to ponder, whether they have really done any justice to the honest and non-tax evading citizens of this culturally rich nation, in the last sixty two years, since independence? At least my reply to this is - not at all. Most of the ruling governments whether Congress or any other, have so taxed the citizens in the name of earning revenue for developmental works in the country, that they have practically demotivated them to pay the imposed taxes honestly and sincerely. The worst part is that even development of the country has lagged far behind the specified targets. Thanks to our unscruplous politicians wearing the garb of the government/ministers.

The taxation rates in the past have been so high, (as high as even 40% to 50% of the taxable income) that only unpractical people with misconceptions could hope to derive cent percent compliance from taxpayers, and perhaps those who are self defeated would themselves and on their own, part with such a large proportion of their hard earned income. On top of all that our highly corrupt political system has been the biggest culprit in adding fuel to the fire and accumulation of black money may be to the tune of Rs 50,00,000 to 100,00,000 crores, which perhaps exceeds our annual national budget. Almost a parallel running black economy. Indian wealth stashed away in foreign banks is said to be much more than, of all other countries put together is a proof enough of our inapt system. Getting that wealth back could be an assignment too far fetched at least as it appears at present. What an achievement indeed!

It would be difficult to swallow the fact that even our IT department has played its role honestly to ameliorate the sufferings of this ever so poor country which inspite of having been called “Sone ki chidiya” in the good old days, has posed to be one of the poorest countries in the world till recently. Is there really a way out of this mess created by our so called dynamic but scams prone leaders? All our Finance Ministers in collusion with their respective Prime Ministers and the cabinet colleagues have hardly thought of any way other than thrusting the country’s tax payers with a heavy and unjust dose of taxation from year to year, besides of course total mismanagement of petroleum products whose rates probably are amongst the highest in the world and highly conducive to increasing cost of daily needs of citizens.

As a result of this, tax compliance has been far from satisfactory, except perhaps by a few million odd salaried classes of tax payers, who hardly have any opportunity and scope for evading Income Tax, and encouraging the rest of the crores and crores of people to become non tax payers or tax evaders. Presuming that there is no way out from this malady is like rejecting the analogy of Napoleon the Great, that the word impossible is found only in the dictionary of fools.

To be continued  - Please See Part-II



    Following suggestions for simplifying the tax structure for unburdening the population of the country which would not only broaden the tax payers base to make every citizen a partner in the progress of the Nation but also facilitate improvement in tax compliance and collection besides enhancing the quantum of tax revenue manifolds are put forward for consideration:-

    (a) Let every individual who is having income including a begger, be a tax payer, to make him feel that he is also contributing in the progress of the country and he is not the one, only to receive from the country (means the government) or his countrymen.

    (b) To identify every individual of the country he should be given a unique national identity card (UNIC) which seems to have been finally accepted by the Government. UNIC should specify the address, the district, the State, the place and the date of birth. Its numbering could follow a similar pattern as that of the registration Nos being given to the vehicles, with the exception that the year of birth be also included in the number of the identity card to identify, children (below 18 years), Adults (between 18 & 60 years) and Senior Citizens (Above 60 Years) for the purpose of even extending specified benefits.

    (c) The tax should be payable in any of the banks, nationalised or other banks as long as they are listed with the Reserve Bank of India.
    (d) The tax could be payable any time the person wishes to do so with the bank and in any number of instalments during the year.

    (e) Payment of tax could be linked with issue of ration cards, electricity, water or telephone connections, rail, air or bus bookings, issue of passports, registration of vehicles,registration of land, houses, preparation of voters lists and so on, so that tax compliance can be ensured.

    (f) The rates of taxation should be so nominal that the amount paid should neither upset the family budget nor should any one feel the pinch in parting with this nominal amount for contribution towards the nation’s progress.

    The suggested rates are:-

    (i) For income Upto Rs 50,000 : 1% of Income
    (ii) Rs 50,000 to Rs 1.00 Lac : Rs 500 + 2%
    (iii) Rs 1.00 to Rs 2.00 Lac : Rs 1,500 + 3%
    (iv) Rs 2.00 to Rs 3.00 Lac : Rs 4,500 + 4%
    (v) Rs 3.00 to Rs 4.00 Lac : Rs 8,500 + 5%
    (vi) Rs 4.00 to Rs 5.00 lac : Rs 13,500 + 6%
    (vii) Rs 5.00 to Rs 7.50 Lac : Rs 19,500 + 7%
    (viii) Rs 7.50 to Rs 10.00 Lac : Rs 37,000 + 8%
    (ix) Rs 10.00 to Rs 20.00 lac : Rs 57,000 + 9%
    (x) Rs 20.00 to Rs 50.00 Lacs : Rs 1,47,000 + 10%
    (xi) Rs 50.00 to Rs 1.00 Crore : Rs 4,47,000 + 12%
    (xii) above Rs 1.00 Crore : Rs 10,47,000 + 15%

    (g) The banks should submit their collection statements to the income tax department, who if they feel may carry out percentage checks to ensure compliance and achievement of collection targets. There need not be any requirement for submitting returns for incomes below Rs 3.00 Lac which could be accepted on the basis of self or employers certification. For those with income above Rs 3.00 Lac, tax amount could be deducted by the employers and deposited with the banks every month along with the individual’s income statement. Persons having sources of income other than, and in addition to salary, only need submit their returns to the banks. All banks should eventually adopt automation and be linked with each other through computers. Income paid certificates be issued to the individuals as and when they pay their full tax.

    (To be Continued)


    (h) Income from investments given in deposits for earning interest or dividend only, and tax on which has already been paid should be totally exempted from further tax. All other incomes including agriculture income should be taxable at the same nominal rates as stated above.

    (j) Savings for old age, such as provident funds, all types of pensions and retirement benefits, gratuity, insurance benefits and so on, should all be totally exempted from income tax as is already in vogue with a few exceptions.

    (k) Donations and gifts on which tax has already been paid should not be taxed again. In other words no amount should be taxed more than once. Similarly, all amounts paid to the Government in the form of stamp duties, service tax, sales tax, lease rent/tax, property tax etc should be excluded from the taxable income like savings etc.

    ( l ) Political parties, charitable trusts, all other similar establishments or organisations and even charities paid to the government for reliefs such as floods, draught, natural calamities and so on, should be taxed at the same rates without any exceptions to avoid any possibility of manipulations.

    (m) To prevent large currency accumulation in limited hands, every five years newly designed and new coloured currency notes should be produced with the year of printing boldly printed. At the end of five years the validity of currency notes should expire and the old currency notes should be sent out of circulation and be exchangeable through the banks only, before their validity period of five years ends.

    (n) Taxation laws should be so simplified that not only should these be uniform for one and all but also everyone be able to understand them easily. They should not give any undue advantages to any category of persons except may be handi-capped or senior citizens above sixty years of age.

    (n) To ensure proper scrutiny of tax receipts and tax compliance, suitable modalities and a system be worked out by the Income Tax department to prevent anyone from jumping the tax net and also to avoid undue harassment to an honest tax payer. In other words the Income Tax department also has to play its role in an honest and people friendly manner.

    The above suggestions should ensure that every citizen willingly agrees to become a partner towards cause of the Nation and there should be no reason for a black economy to thrive as it is doing now. The Government also needs to play its part well so that the citizens feel that their contribution is being well spent and not going into wrong hands.

    These suggestions are just the thoughts of a loyal citizen of the country and should be dissected thoroughly, analysed and discussed so that some fruitful solution can be arrived at for the general benefit of the country’s population.

    A strong hand of an honest and sincere government would be an essential ingredient for this achievement.