Economic Highlights

New Delhi, 18 July, 2016

Govt’s Unnecessary Taxes,

DO AWAY WITH INCOME TAX!

By Shivaji Sarkar

The Government’s concern of bringing “black money” into the open is laudable. However, it also needs to do a study on why people do not want to pay taxes on their legitimate income? Should personal income be taxed? And, if so to what extent?  Important, questions that rock the minds.

Add to this, the special investigation team (SIT) set up by the Supreme Court has recommended that cash transaction should not exceed Rs 3 lakh. This is yet another concern. Undeniably, the country’s entire wholesale business thrives on cash. But the traders pay taxes too. Primarily, because cash transaction ensure the least chances of default.

True, for the bureaucracy cash deals is a problem. But barring ready money might severely hit economic activities. Think. Wholesale traders do not have the time or the mechanism to deal with defaulters. Simply because their business is of trust which our officials find difficult to understand. Therefore, let cash transaction continue.

Notably, the Income Declaration Scheme 2016 opened last month is also another move on the lines of several voluntary disclosure schemes. Remember, last year too schemes for disclosures for persons having money abroad were announced.

Wherein, tax evaders were made to pay 30 per cent tax and 30 per cent penalty. And the Government got a net tax of Rs 2,500 crores on disclosures of Rs 4,147 crores, realistically speaking not a large sum.

Certainly, the new scheme has on the face of it evoked interest as evident from the response. Many people want the date extended to enable them to pay their taxes in tranches. Whereby, they pay 45 per cent, 30 per cent tax and 15 per cent penalty. The Government has rightfully agreed to allow them to pay their taxes till September 2017.

Importantly, this is a pointer to the fact that people are not unwilling to pay taxes. But whether the heavy penalty is justified or not is an issue which should be looked into. As it is not unlikely that the responses would be more if penalties are minimized to five per cent or done away with altogether.

Certainly, this exposes the people’s fears about the functioning of the Finance Ministry which is also the concern of Prime Minister Modi and Finance Minister Arun Jaitley.

There is no gainsaying that each so-called tax reform is done to suit bureaucratic rules instead of mopping up taxes. Had this not been so, there would have been a permanent mechanism for such disclosures as well as simplification of rules.

Apparently, the tax collectors have a dislike for simplification of procedures and rules. Worse, the political leadership has not been able to do away with the officials manipulative tactics. Since the so-called liberalization, the bureaucracy has become not only more powerful but also unnecessarily, increased numerically.  

Consequently, the political leadership continues succumbing to the bureaucratic interpretation of rules, despite people protesting about the taxmen’s maneouvers. Indeed, they were expecting the present Government elected with an absolute majority would act sensibly and have a different approach to solve the complicated procedures.

No doubt, the procedures might look simple, but trust the bureaucracy to make them cumbersome for obvious reasons. They delay simple decisions which leads to harassment, humiliation, loss of man-hours and revenue.

An example. Let us take the claims by multi-national Cairn for $1 billion against the Rs 29,047 crores retrospective tax levied on it. The company argument is that this has affected its value. Replicate this for individuals, therefore one needs to take a pragmatic approach while making such odd demands.

Besides, according to the I-T department’s own admission, over Rs 5 lakh crores (some say Rs 7 lakh crores) of its demands are locked in dispute. Shockingly, of these 40 per cent of the cases involve very small amounts. Pointing to how even small earners are being made to suffer.

More scandalous, according to the IT department’s own admission, almost 90 per cent of the disputed cases have been decided in favour of the assessees. A disgraceful pointer to the flawed functioning of the department.

Surely, this calls for not only immediate solution, reduction in the number of tax officers and also simplification of procedures. One, the filing of tax returns should be done away with at least up to an income of Rs 20 lakhs. Effectively with 47 per cent inflation between 2010-2015, the amount totalled a net worth of Rs 10 lakhs.

Further, the Government also needs to ponder over whether taxing personal income is appropriate or not. In reality there is discrimination. Income-Tax is not levied in North-Eastern India, apparently to boost the economy of the region. Even Central Government employees, irrespective of their rank, or deputation from any State, are exempt under Section 10(26).

Hence, whatever the rationale, this needs to be applied all across the country. If one region can be exempted from paying income tax, the entire country should be exempted.

Additionally, the logic of loss of revenue is incorrect. The Government does not compute the expenses incurred in additional officers and staff employed since 2003. It also does not take into account the unnecessary rise in expenses of the department.

It also does not penalize its officers for forcing small amounts into dispute and consequently imposing burden on the Government, tax payers along-with unnecessary legal hassles for both the Administration and the assessee, who is mostly right.

Now let’s talk refunds. Appallingly, it is over Rs 70,000 crores according to official statements which does not include the additional expenses on refunds. As a result, it is difficult to comprehend why an extra amount is collected at all. Obviously, the Government itself can neither be unethical nor indulge in illegalities.

While the Government claims the process of refund is simple, people continue to complain often that the refund is not given back to them  

Yes, most experts feel that doing away with personal I-T would boost demands in the market and accordingly boost growth.

Furthermore, let us not forget that a taxpayer does not have to pay only income tax. Alongside he has to pay levies, tolls, cess and myriad other taxes amounting to about another 40 per cent of his income.

Shamefully, even levying of a one-time parking fee is illegal. So is the logic of forcing people to pay atrociously high parking charges to satiate the greed of the parking mafia. The ostentatious argument that it reduces congestion has not been found to be correct. Practical problems cannot be solved through levying of different charges or taxes.

Clearly, even as the Modi Sarkar professes to function logically and pragmatically, let it decide once and for all to do away with income tax.  True, the Government has fears that it might lose revenue but in reality, it would not. As whatever it might deem to lose would be made up through higher economic activities and higher indirect taxes. ---- INFA

(Copyright, India News and Feature Alliance)