We live in a welfare state. There must then be a debate about how best the State can provide its citizens their essential services—which are ensured by the directive principles in the Constitution—and how it should be financed through taxation. It is an accepted principle of taxation that it should be broad-based, equitable and progressive. There must be a link between an individual’s income and tax obligation: those with higher incomes must pay a higher percentage of it.
Our tax system isn’t progressive enough. With the growth of the economy, the number of high income individuals has been increasing. But their newly increased income is out of the tax net since the highest marginal rate of tax is only 30 per cent. This is perhaps the lowest in the world. There is scope for at least two higher rates: 40 per cent for incomes above Rs 50 lakh a year and 50 per cent for earnings over a crore. The fact that richer people should pay more tax may not be pleasant, but it’s in the national interest. It’s even necessary, both on equity and revenue grounds.
Another tax we must introduce is an inheritance tax, or estate duty. Success is personal; it is something to be savoured, not bequeathed. A crorepati’s children have every right to make their own way in the world and not stay under his/her shadow. This is done by levying a tax (say, 35-40 per cent) on the wealth left behind when one dies, so that a good part of that wealth returns to society—usually in three generations unless the successors also earn in their own right. We’re a land of maharajas; having abolished privy purses, we must take the next logical step: put in an estate duty.
Some apprehensions have to be addressed. These aren’t taxes on the middle class. They should apply to high net-worth individuals (HNIS)—the very rich. Who are HNIS? Surely not those with an income of Rs 1 crore? What about Rs 100 crore? Can we build in an element of progression in this tax? Let’s debate these issues. A consensus should emerge from such debate. This is an interesting and challenging time for the finance minister. Will he show the greatness the country expects of him?
(The author is advisor, Centre for Budget and Policy Studies, Bangalore); E-mail your columnist: vyasulu AT gmail.com
Apropos Big Fish Need A Bigger Net! (Feb 18), we still term ours a ‘welfare state’ even though only three per cent of Indians are touched by income tax laws. Is it not a farce that a nation of 1,200 million, with 300 million deprived, aims to run through income tax laws that target just 30 million Indians?
My apologies to Peyush, Faridabad.
In India like Greece and other places, it is mostly an issue of compliance rather than any new laws.
We should just auction off the tax collection to the highest bidder.
SANDILYA >> Incomer tax Dept should spend all their energies on big real estate sharks and commercial establishments and the systems should be such all monitory transactions of above Rs 2 Lakhs should get automatically linked to the PAN.
Here is a simple practical suggestion along lines you have mentioned.
Declare a law that - in every , i repeat every Real estate transaction in all Cities and Towns of India with population more than 1 lakh, both the seller as well as buyer should have a PAN Card and declare his/her income/assets in toto and be ready to periodically update the same/be ready to be scrutinized for same periodically.
If that is not possible, either seller or buyer should mandatorily deposit 25% of value of RE transaction as a special ,one time tax. The value should be based on guideline value only. If not the registration will be invalid in a court of law.
Now is this hard to implement? No. But will it be implemented ever? No. And will the SOCIALIST INTELLECTUALS of India and geniuses like Shri Shri Amartya Sen and Madame Arundathi Roy ever speak for such ideas? Never !!
#13 and #14,
Even as we make our petty fights on Ayn Rand and need for welfare state, we are told in one of our news snippets that more than half of our Legislators (MPs/MLAs) do not own a PAN Card (and do not hence have a history of filing tax returns)..
And it is also said that the wages given to our MPs and MLAs are not subjected to taxation.
And while all these are outright mockery of the very concept of democracy and the concept of socialism as envisaged by our founding fathers, we have the spectacle of UPA's professional paid media journals demanding higher taxation on the super rich..
Yeah, go ahead and enact a law to tax even more heavily all those who have paid taxes all their working lives, and you can then distribute the tax money (through equity infusions to PSU banks) which shall in turn fund it to likes of Mallaya and bring on the joys of socialism to the Aam Admi.
A large work force of Income Tax department waste their energies sifting the IT returns of salaried class for the likely last few rupees that can be milked from this hapless captive class of tax payers. Instead of the individual IT returns, group returns by the employers should come into practice subject to random checks, for saving time, energy and paper.
Incomer tax Dept should spend all their energies on big real estate sharks and commercial establishments and the systems should be such all monitory transactions of above Rs 2 Lakhs should get automatically linked to the PAN. Tax collections like service taxes are not regularly credited to the govt accounts by many commercial establishments, which needs urgent attention and close monitoring by developing good software systems.Most shop- keeprs evade tax since they are sure they can manipulate the system by bribing the inspectors, which turns out cheaper than paying the whole tax thus collected. With few exceptions most Officers and the ministers manning the Govt. depts are rarely well versed with the software utlity and are penny wise pound foolish. A good software pays for itself but the depts rather stick to the lowest quote and get shoddy non performing systems at a huge loss to the exchequer. Tax laws should get amended for stricter complince and imprisoning of tax evaders as in the USA should become the norm to send right signals across all evaders.In USA , tax is deducted from even the tips given to the waiters in the restaurants. galloping inflation owes much to the black economy and untaxed money with crooks...
@ HITESH BRAHMBHATT
I have not read any of the below books as suggested by you. Some of the industralist mentioned above have created lots of jobs. Companies like Wipro, Reliance etc had created millions of direct and indirect jobs and in turn increased the tax revenue collections. Govt should consider increasing the compliance. Their is a parallel black economy in India which needs to be brought under tax net. Govt should increase compliance rather than milking the people already paying their taxes honestly.
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