Economic Highlights
New Delhi, 29 October 2018
High IT A Myth
THIS NEEDS TO BE ABLISHED
By Shivaji Sarkar
Almost 81,000 Indians
earned over Rs 1 crore a year, screams Central Board of Direct Taxes (CBDT). Is
there really anything to cheer about?
The other side of it
is that the number of non-salaried taxpayers has increased but it is the
salaried, who bear the tax brunt. The figures also are upbeat on 15.7 percent
rise in tax collection. But it conceals the rise in refunds.
Upto 20 October,
direct tax collections for 2017-18 was estimated at Rs 4.9 crore against Rs 4.2 crore a year
back.
The number of refunds
almost doubled to two crores and amount increased from about Rs 70,000 a year
to Rs 1.1 lakh crore. It means the tax collection cost has increased. That
stymies individual expenses and hurts growth.
Each refund has an
administrative, compilation and transaction cost. By simple logic as the number
of refunds doubled, all these costs have also. It also means the tax department
is overstaffed and needs to reduce its flab. The tax administration cost is
higher than the cost of refunds.
The effective
taxpayer increased, at least notionally because all filers of returns do not
pay taxes, from 6.47 crores to 8.27 crores, says Finance Minister Arun Jaitley.
In the last two years revenue collected made the Government richer by Rs 90,000
crores, Rs 45,000 crores a year.
The spend towards tax
collection at Rs 1.1 lakh crores more in 2018-19 is 4.32 per cent of the total Government
spending. The cost has increased by 35.75 per cent. So more the Government
earns more it loses too.
A NIPFP study by
Arindam Das Gupta in 2000-01 found that compliance cost is high. The cost borne
by taxpayers is 6.8 per cent of gross income or 49 per cent of personal income
tax collections. If third party compliance costs, like those of employers and
banks, are added, this rises to 56 per cent of taxes collected.
The third party costs
of deducting tax at source (TDS) amounted to 11.8 per cent. It is borne by the
employers. The third party costs constitute 53 per cent of total collections
and 60 per cent non-company income taxes 1999-2000, says Das Gupta quoting CAG
report 2001. The cost exceeds sometimes even tax paid, says Das Gupta.
An important reason
for the “low compliance costs” of salaried employees is because their employers
bear the costs of assessing and form 16A.
In simple terms it increases
business expenses. All Government departments are spending enormously on this
count. So whatever the Government is earning, it is losing on the implementation
of an irrational procedure.
The aim of TDS itself
is questionable. It is irrational because the Government is realizing a tax
that is not due to it before the end of a financial year. It is also not paying
any interest on TDS. How can a tax be deducted even before one utilizes his
earnings? The worse is it deprives an earner of his right to spend and
contribute to the growth of the economy. On an average over four months wages
are locked up in TDS or simply put it is never paid.
The TDS is locking up
huge direct and indirect finances that could have been utilized for productive
purposes and enrich the economy. This loss has to be quantified. In other
words, if TDS is abolished, the Government and all other employers would save
huge compliance cost that would add to growth.
Das Gupta found that
bribe quantum is high especially for non-salary earners but was not less for
salaried earners either.
Even now despite
online filing it has not been eliminated. There are allegations that
post-demonetisation harassment has increased. It has now even engulfed rural
and semi-urban areas.
Then there is the
commercial cost to the banks. As per Das Gupta commercial costs to the banks is
at 11 per cent. The banks however say they spend double that amount or 22 per cent.
The banks thus are subsidizing Government expenses. Or the bank depositors are
bearing the cost by arbitrary reduction of interest rates on deposits and
increases in fees and other charges.
This is retrograde.
The direct taxes are leading to indirect levying of charges on the same
taxpayer. This apart, by forcing banks to subsist Government expenses it is
adding to NPAs indirectly.
Banks are public
entities not Government bodies. The Government is only a managing authority and
has no right over the deposits or earnings of the banks. Should it have
unfettered rights to tinker with its functioning or deny the actual charges?
The estimates, as per
the NIPFP study, of compliance costs are high by international standards
equaling at the median 130 per cent of taxes paid. With the rising numbers of
taxpayers it can only be estimated to have increased. It means the rationale of
income tax itself is doubtful, if not retrograde.
This apart there is
little to rejoice at the number of crorepati taxpayers. Most of them after
paying over 33 per cent IT lose a sizeable sum and do not remain crorepatis.
The tax rates are
constant. It does not take into account the inflation, which has risen by over
60 per cent since 2010. Asking someone with low income of less than Rs 3 crores
to part with 33 per cent of his income is itself questionable. Even the
Economic Survey 2017 found that majority of the new taxpayers is at the
threshold level of around Rs 2.7 lakhs.
The cost of filing and keeping records is more.
Should not we link I-T
to price index? If inflation increases, the benefit should be given to the
taxpayer. That further questions the rationale of having such tax.
The 2001 study is
clear on bribes. It says that bribes remain an integral part of the tax system
whether for the salaried or non-salaried. On silly issues, the I-T appellate is
flooded with cases. The irrationality of refusal is there even where the norms
are appropriate and clear. Many interest subventions are denied on virtually no
ground.
It takes 15 years of
toil to be settled by the appellate because the department finds it convenient
in not accepting the plea that the date of allotment, an established norm,
should be adhered to for such decisions. It is not done to “settle” it. It does
not need an elaboration.
So if I-T is
abolished, the Government and society saves more and frees it of apprehensions
and can spur the economy.---INFA
(Copyright, India
News & Feature Alliance)
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