Reforms in the Tax Administration

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Business Mantra : Faridabad

Introduction:

Tax has been collected from the time immemorial. In a globalising environment, tax reforms can serve a multitude of needs. They can help enhance revenue productivity, reduce economic distortions, and help create a stable and predictable market environment. Given the growing mobility of capital and skilled labour which raises new tax issues; continual reforms also serve, simply, to keep the country up-to-date with changing conditions. Furthermore, tax reforms can help address equity concerns. To run the administration properly and to create the infrastructure and facilities for the common man, the levy of taxes and the judicious application of the funds so collected has always been the prime objective of most of the government. In response to its changing developmental strategy, India’s tax system, too, has been undergoing profound changes. Within the framework of a closed and heavily planned economy, the tax system was based on multiple objectives: raising government revenues, generating employment, increasing equity, and fostering investments in ‘backward’ regions. This gave rise to enormous complications and created channels for tax evasion and avoidance. Further, given its discretionary nature, the system had built-in incentives for firms to lobby for industry-specific concessions – which added even further to its complexity. In order to improve the collection of taxes, comfort for the common man and realization of taxes proportionate to the level of income and wealth, the following suggestions may be very useful:

1. Expenditure Tax vs. Income Tax: The imposition and collection of the Income Tax was very important earlier as the expenditure tax imposition and its collection was never so well managed. The Indirect tax was earlier imposed on the consumable goods. Important luxury services which were the main component of the expenditure of the rich and affluent section of the society had remained out of the purview of the tax net. But with the passage of time the systems have so well developed and all the services have now been brought into the tax net which has made it possible to not to leave any important segment of expenditure from it. While the expenditure tax can now be so well recovered the income tax is now losing its importance and relevance. It is more of a burden on the people of the country and in order to stimulate their feelings and bring cheers and enthusiasm in the country it is urgently needed to modify the income tax system. What is needed now is to immediately announce that there would be no income tax upon the income upto Rs. 10,00,000 per annum. Anyone having income of more than Rs. 10 lakhs per annum will have to pay an income tax of 15%. No deduction, nothing else will be applicable. No ifs and no buts. Income Tax Act should begin with this and end with this. All Fringe benefits received will be counted as part of Emolument and taxable as per the limits above.

2. Simplify Corporate Tax: The corporate Tax should also be made very simple. The tax should thus be imposed at the rate of 25% and no deduction whatsoever for anything should be allowed. No scope for any jugglery by any corporate. There should not be any Dividend Distribution Tax. However the dividend in the hands of the shareholder would be treated as Income and would be taxable as per the limits given above. Similarly there would not be any Fringe Benefit Tax but the same should be made taxable in the hand of the employee.

3. Reimpose the Wealth Tax to bring Equality: The biggest mistake in the tax collection policy and mandate surreptitiously inserted into our Tax regime and the biggest favour done by the Govt to the wealthy is the withdrawal of the Wealth Tax. No other bigger benefit could have been given by the Govt of the day to the rich and mighty than by withdrawing the wealth tax. Today The Govt is trying to get land but no land is available. Reason is that most of the black money is infused in land, building and gold and possession of all three have become almost tax free. The following modification for the wealth tax is thus suggested, which not only would fill the coffers of the Govt but would also make the dream of housing for all etc possible but also achievable. The wealth tax guideline should be very simple. All land and building, jewellery etc upto Rs. 5 crores per person or entity should be made tax free. Beyond 5 crores a wealth tax of 1% should be levied. All Trusts and other institutions except the Govt owned or operated land and building should be in the tax net. The exempted list of the religious and educational institutions who are engaged in public good should be published and they can also claim the wealth tax exemptions. The amount of exemptions and benefits given to them by the Govt should also be made public. Other than the above two all others should be made liable to pay wealth tax. Present day if we see all the erstwhile royal families owning huge palaces and lands surreptitiously in the name of some Trust which is basically to look after their own luxury. Similarly the modern day Maharajas have also got the land in the name of Industries and SEZ etc basically to amass huge land parcels. All these should be subjected to wealth tax. Once it is done we will see that people who are unnecessarily holding huge land would either start putting them to meaningful use or will surrender the same. In any of the case the prices of land and building would drastically fall and affordable housing would be possible. Benami land holding would get exposed. The need for Land Acquisition etc may not be required. On other hand people would willingly come forward to offer their land for use by the Govt. The Gold kept in Bank in form of Gold Bond etc will be given interest by the Bank while the Gold and Jewellery kept otherwise will attract wealth tax.

4. Impose Cash Transaction Tax to stop FICN & Black Money: There is an urgent need to put a cap on the cash transaction in the country. Over 10,000 crores of Fake Indian Currency Notes (FICN) are being pumped into Indian economy by Pakistan every year. The menace of black money and resultant high land and building prices can also be controlled only if we control cash transactions. All cash transactions above Rs. 50,000 per month per person (where bank account are linked with Aadhaar Card and multiple bank account will also not be allowed to exceed the limit of Rs. 50,000 in a month per individual) should attract a Cash Transaction Tax (CTT) of 1%. Govt has already given permit for Payment Banks and all transactions thru these payment banks, Credit or Debit card or RTGS or any other electronic form which does not use payment in cash need to be encouraged. A person should be given a rebate of 1% from Income Tax on the lump sum total of all his payments thru these mediums. The maximum limit of tax rebate would be 1% of his Net Taxable Income. Slowly Govt should stop Rs. 1,000 and 500 denomination of notes from circulation. Presently it has mandated that all notes prior to 2005 will not be acceptable. Another order of Notes printed upto 2010 to be put out of circulation from 1st July 2016 should also be issued. Later upto 2015 be put out of circulation. Thus the big notes would go out of circulation and people would be doing more transactions electronically or thru the Payment Banks.

5. End the Toll Tax menace on non-commercial vehicles: The toll tax on the vehicles is pinching all and sundry. The collection statistics of toll tax shows that 80% of the Toll tax is collected from the commercial goods carrying vehicles. Rest 20% is collected from all other vehicles. The Govt should immediately stop the toll tax on all vehicles except the Goods carrying vehicles. To compensate the collection the rate of toll tax on commercial goods carrying vehicles can be increased by 25% so that the total collection is not affected. On the other hand 95% vehicles would not require to stop for toll and crores of rupees worth of petrol and diesel would be saved.

Conclusion:

If the Govt make the tax law simple and dovetail on the aforesaid principles it would bring huge enthusiasm among the people of the country. It would augment collection of total taxes which can be put to better uses. It would ensure that 90% of middle and upper middle class would also come out of the income tax net. It would ensure that rich people pay more taxes. It would thwart the greed to amass huge land and building and Jewellery beyond the point of needs. It would bring the unused blocked land parcels for justifies and meaningful uses. It would make the housing for all dream a reality. It would bring justice for all. The Govt of the day would be able to implement its reform and development agenda with much ease.

Author: Dr. Sarla Sharma is Head of the Department of Business Administration at Kanoria Mahila Mahavidyalaya, Jaipur Rajasthan. She can be contacted on her email address doctorsarlasharma@gmail.com.

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