In the recent budget to balance his figures the Finance Minister thought it would be wise to tax EPF withdrawals. Rightly there was a hue and cry. Fortunately, good sense prevailed. The government which believes what they think and do is always right, did a quick rethink and rolled back this senseless measure.
The interesting observation that stems from this action is “it is easy to tax those who are taxed even more”. They are proud Indians as the radio jingles remind us, so they will not complain. There seems to be nothing done to make more Indians proud tax payers. Just 2 percent of our population pays tax, does it mean all this hungama about nationalism or patriotism that's playing out in the media is by these 2percent proud Indians? What about the rest?
What is the government doing to bring more Indians into the tax net? The measures they are taking will surely drive those who pay tax out of it. There is no incentive to pay tax; the disincentive is that because one is a tax payer one is asked to pay more. Infact if you are not a tax payer life is simpler, no returns to file, no assessments to attend, no botheration of paying advance tax etc etc.
If you are not a tax payer, every now and again the government comes up with an amnesty scheme where after paying a little fine, your money changes its colour from Black to white and you can go on living happily till the next amnesty, no questions asked. This remains true for direct or indirect taxes.
Farmers all over the country are killing themselves because they are usually unable to make ends meet. Yet farm income is not taxed, in fact this is a farmer friendly budget. Why should rich farmers not pay tax after a certain threshhold? Usually this provision is misused by politicians themselves who show huge farm income when filing and that is generally cash. You do not expect the farmer to sell his apples by cheque.
Most of the rules regulations are such that they appear cumbersome to follow or appear to be taking away most of what a person earns by working hard. They naturally push people to evade paying their taxes. There are many self-employed people who provide services, say plumbers. The other day one of them mentioned that he was now going to stop doing business in his firm’s name, most of their daily income is in cash. They are free to declare what they wish and keep out of the tax net what they wish. So, they will declare just enough or nothing to ensure that they fly just under the radar of income, sales or service tax.
Apparently, all these years he like many of his tribe, ran his business without registering it. They believed that is they did register their little companies they would be asked to fill forms and have to waste time in Government departments showing their books which they do not maintain anyway. If Prime Minister Modi, succeeds in his mission of ensuring “ease of business” it would surely help in adding to the number of tax payers. The current rules simply do not support an environment of compliance, the cost the discomfort are just too high.
Yet, instead of thinking of ways to welcome these people into the tax net, the government scares them off further with a swachh tax here and a cess there, if the government gets ideas from social media we are looking at a Mallya tax in the next budget to help fund banks. Even a small LPG subsidy, the government wishes to take away from those who declare an income above 10 lacs. So really, after paying tax and using tax payer’s money to pay the LPG subsidy why knock them off?
Can the government think of ways to incentivise paying tax? Let assume Mr. X pays Rs 1000 in year one as a certain form of tax, be it income tax or sales tax or service tax. Next year if he pays a higher tax, depending on the slabs he will get a discount. So if he pays Rs 1200 in year two he would be entitled to two percent rebate in year three. If he pays Rs 1400 in year two his rebate could be five percent in year three. Also if he pays more that 30 percent over the previous year his accounts would be considered assessed.
This will make people want to pay more to reduce their administrative costs related to paper work and free the concerned departments human resources to get out onto the streets and catch those who are evading paying their taxes and not harassing tax payers. The other suggestion which is all over the internet, is give reservations to tax payers, then our percentage of tax payers with jump drastically and that too overnight.
Blaise Costabir is an alumnus of the Asian Institute of Management and a first generation entrepreneur
