First of all, I am of the opinion that taxing expenses is
much more meaningful than taxing income. On earning, a person does only two
things – deposit in a bank or invest/buy. Anything he buys, he will have to pay
a tax, anything he deposits, he will have to pay a tax on the interest. If you
target income, you are only targeting declared income. Almost everyone forgets
or the more apt word is, don’t know that they need to pay taxes over their
share market earnings, they will have to pay an additional tax over the TDS in
case of fixed deposits based on his tax slab and the likes. But note that, most
of the taxes in India are paid by the salaried class only because a major part
of their income is public. Another alternate is to tax what they spend. After
all, people are supposed to eat something to live. As against the VAT of 14%,
declare a flat service tax of say, 30% over everything and anything. What has
the customer got in it? His income is not taxed and hence, he is goaded to save
more. This will reduce the social security burden for the governments at a
later date. What has the governments got in it? The concept of black money will
be erased. After all, one day or the other, the person is supposed to bring it
out and spend it. If he is only stashing and not spending, there is no
difference between that money and papers lying in my dustbin. Instead of
focussing on a ten thousand different sources of income and getting entangled
in an impossible spider web, the focus can be shifted to one single aspect –
how to ensure that everyone pays service tax. By ensuring every shop submits
it’s statements correctly, we are reducing the number of entities to monitor
and manage. But, due care should be taken to understand whether government
loses income or gains by this.
Coming to the poor. To make the process simple, a BPL
citizen should also pay taxes so that verification against the shopkeeper can
be standardized. But since, a BPL citizen shouldn’t pay taxes, the billing
kiosk can have, say, an option to mark the buyer as a BPL and give his
reference number, scanned from the card provided. The money will be transferred
immediately to the bank account of the BPL citizen. This has got another
advantage – the amount deposited thus is an indication of his real wealth and
the same number can be used as a justification to scrap off his BPL status.
Assuming we are stuck with Income tax. Let’s take the case
of a common salaried employee in India. What are his sources of income? Salary
and Fixed Deposits. What more does he generally have? Income as rent on second
home and shares; and possibly, some farm income and sale of old stuff. 90% of
the TDS class fits into this category. If this is the case, does it make any
sense for asking these people to file tax returns and then penalizing them for
not doing? Though the downside is that many tax consultants will lose their
jobs, the upside is making lives of everyone simple. Why is it not possible to
follow a single process and establish standards?
1.
PAN number is mandatory for a job, for renting a
house, for providing rental receipts, for buying and selling stuff more than Rs
25000(or more apt, per capita income of the bottom 90% of India’s population),
for DEMAT and for FD. After all, it is mandated for some of them; it’s just a
matter of will to extend it further. Also, there is no scope of bluffing with
rent because, if more rent is declared by the tenant, the owner should pay the
tax.
2.
Authorization of IT Department to collect tax on
a fixed date from the salary account. Allow an overdraft.
3.
In case bulk calculation for such huge number of
accounts is going to create a problem, declare a flat 10% or 15% tax on share
market, rent and fixed deposits irrespective of income. If the assesse need not
pay taxes, he will ask for correction.
Since all the information is being tracked against a PAN
number and since IT department is getting regular information from multiple
sources, it’s just like generating a document like Form 26AS with the
information it holds. Before finalizing the statement, provide a cut off for
declaring anything extra – expenses, savings etc. Once this is done, it’s just
a single document downloadable and used for all assessment purposes.
Next is, maintain a BPL database. Any entry in that need
not pay any tax. Now, what is left is, balance of India and it’s but a matter
of time we fit them into a pattern.
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