A new scheme to revolutionise the collection of income tax in India, enabling enhanced tax collection with least trouble to the citizens.
Collecting Income Tax in India needs an overhaul. The tax administration official is disliked by the common man. Tax evasion is the rule rather than the exception. About 3% Indians pay tax, the rest are either exempted or evade it.
The system needs a change. We need to achieve:
- Removal of oppressive tax collectors
- Simplicity of tax collection procedure
- Removal of paperwork from tax collection and assessment.
- Universal coverage so that every Indian contributes to tax collection according to his means
- Enhanced tax collection so that government has funds to do nation building
Deposits in the banking system stand at Rs 106 lakh crores in July 2017. Government estimates to collect Rs 9.80 lakh crores in direct taxes this fiscal, using the resources of a wide spread Income Tax Department.
Government needs to take the following steps, consecutively:
- Every Indian must have a bank account or a postal bank account. This has already been achieved largely by the Jan Dhan Yojana
- Measures to encourage use of banking accounts.
- Transactions above Rs 5,000 to be only by paper transaction, (cheque / Paytm / BHIM / NEFT / mobile banking)
- Giving and receiving cash in excess of Rs 5,000 to be a punishable offence fined by 300% fine of given amount, to both giver and receiver.
- Savings banks accounts to give an interest of 6 – 7 per cent to the depositor
- Deduction of income tax from every bank account in India of 2 per cent of the average balance in January and 2 per cent in June of each year. Direct transmission of this deducted amount by the banks to the Central Treasury. No income tax returns, proofs or papers to be filed at all.
- Abolition of the Income Tax Department and the Central Board of Direct Taxes so that Indians feel carefree and safe. There should be no ITO left to possibly question the citizen on where his income came from, infact no checks at all.
Since the savings bank interest rate will be 7 per cent the citizen will not mind a deduction of 4 per cent towards taxes. They will stop hiding their money in mattresses and cupboards and put it all in the banks. The money deposited in the banking system will grow hugely. There will be no questioning of the source of money coming into the banking system, as there will be no Tax Department to do the questioning.
Results: Black money will become white money. The economy will double or treble soon. Indians will bring their hidden money from abroad back into the Indian banking system.
The tax will be deducted in such a minute quantity, 2 per cent of the average balance that it will not be noticeable. It will be an automatic deduction, requiring no input from the citizen. Each time there is movement of money from one account to another, it will be further taxed at 2%. Tax collection will grow exponentially. I give a small example.
Mr Bharat has Rs 10 lakhs in his account. He is taxed 2 pe cent in January. (Rs 20,000) He buys a car in February for Rs 4 lakhs and issues a cheque to Tata Motors account. Tata Motors is taxed Rs 8,000 on the same amount. Tata Motors pays part of this money Rs 2 lakhs to Tata Steel to purchase of steel to produce cars. Tata Steel is taxed Rs 4,000 on the same money. Tata Steel pays wages of Rs 1 lakh which is taxed Rs 2,000 in the bank of his employee. The employee pays school fees from his salary of Rs 40,000 and this is taxed at Rs 800 in the account of the school. As the money moves, it is taxed again and again thus creating additional revenue for the government.
This taxation is fair and equitable, and impartial for all citizens. Rich or poor, citizens will pay at the same rate, so no calculations, no efforts at under declaration or evasion.
The Income Tax Department should be re-dedicated to the implementation of GST. Thus their jobs will be saved. Chartered accountants will also focus on GST filing and so will not lose their livelihoods.
Within a two year period after implementation there will be a line of foreign businesses trying to enter India to benefit from the new taxation regime here. Our economy will grow all the more.
(Views expressed in this article are of Ilika Mann)