Tax Compliance in India.
Income tax is one of the oldest taxes that ever was existing on this planet!
Its recorded in Indian history that kings charged one sixth of the produce as tax and had it collected from every one who produced. This could be grains, agricultural products, forest produce or this could be cloth or any other material.
The King had a granary and a large storage house where he stored these products that were collected by his people. He used this material for running the government, maintain the city and the country. Also to fight is wars and battles. Of course, in times of need, these granaries also gave food to the people.
And there were number of wars in those days! Almost an ongoing war with some of the neighbours, cold wars with a few others, silent wars, secret wars and only few were friendly states. Even with all this, they still had money for development, road laying, canal building and then of course, for their own luxurious living as head of state!
When you say, one sixth was paid as tax, it works out to about 16.6% of the total income of a person. The difference, of course, is the nett and gross. But still, let us call it 17% of the total income.
Today we pay an income tax of 30% and a GST that averages to 15% on various products. ( I am taking a weighted average rate for a high of 28% and a low of 0% on the number of items basis and not on volume basis). However, the rate with just these two works out to about 45% of the total income of an individual. In case of a salaried individual there is not much of a difference between gross and nett.
Apart from this, we pay Provident Fund contribution which is really an income to the government though not usable as it is. This works out to another 24% (12+12) and then there are numerous other costs that are hidden in the products and services given by various citizens of the country. For instance, you buy a pencil for Rs.2/-, you end up paying almost 30p out of this for wood or plastic in it and then for the 'lead' / graphite in it. This the manufacturer pays as mining charges! Other examples would include the huge charges paid by your telecom company to the government as bandwidth charges. Customs in imported components and so on and on.
Putting them all together, what we are paying as taxes works out to well over 70% of your income. In other words, nearly three fourths of your income goes to the government as taxes!
As our ex-Finance Minister, Mr Pranab Mukherjee once said, taxes should be extracted out of the citizen without he realising it! Like a bee that sucks honey from the flower! He quoted Kautilya. But well, GoI has always been a very efficient bee. They make it sound like there is not much of a tax.
This figure I have put here is possibly an average or a median, may be. But the real tax varies between 80% at the maximum and close to 58% at its minimum. Please do not think that this 58% is for the poor people. You will be mislead. On most occasions, the least is charged on the rich and the poor pay the maximum out of their salary as taxes!
No wonder then people are not really keen in paying taxes. Particularly, when after having taken so much of my money, you give a secondary treatment, what will you do? Try all possible ways to avoid paying taxes. So what you need to do is really, reduce such a phenomenally high taxation to palatable levels. All inclusive taxes should not be more than 20% for an individual. This should include Income tax, GST, corporation taxes, multiple levels off taxes such as corporate tax, wealth tax etc.,
Make Tax Payable.
As a first step, please merge municipality taxes, numbering almost eight across the country, to one! Second step, remove or scrap income tax! Third step, over the next five years, remove municipal corporation taxes. There should be, but one tax across the nation and that will be GST!
This will encourage compliance! And better revenue for the government.
Its recorded in Indian history that kings charged one sixth of the produce as tax and had it collected from every one who produced. This could be grains, agricultural products, forest produce or this could be cloth or any other material.
The King had a granary and a large storage house where he stored these products that were collected by his people. He used this material for running the government, maintain the city and the country. Also to fight is wars and battles. Of course, in times of need, these granaries also gave food to the people.
And there were number of wars in those days! Almost an ongoing war with some of the neighbours, cold wars with a few others, silent wars, secret wars and only few were friendly states. Even with all this, they still had money for development, road laying, canal building and then of course, for their own luxurious living as head of state!
When you say, one sixth was paid as tax, it works out to about 16.6% of the total income of a person. The difference, of course, is the nett and gross. But still, let us call it 17% of the total income.
Today we pay an income tax of 30% and a GST that averages to 15% on various products. ( I am taking a weighted average rate for a high of 28% and a low of 0% on the number of items basis and not on volume basis). However, the rate with just these two works out to about 45% of the total income of an individual. In case of a salaried individual there is not much of a difference between gross and nett.
Apart from this, we pay Provident Fund contribution which is really an income to the government though not usable as it is. This works out to another 24% (12+12) and then there are numerous other costs that are hidden in the products and services given by various citizens of the country. For instance, you buy a pencil for Rs.2/-, you end up paying almost 30p out of this for wood or plastic in it and then for the 'lead' / graphite in it. This the manufacturer pays as mining charges! Other examples would include the huge charges paid by your telecom company to the government as bandwidth charges. Customs in imported components and so on and on.
Putting them all together, what we are paying as taxes works out to well over 70% of your income. In other words, nearly three fourths of your income goes to the government as taxes!
As our ex-Finance Minister, Mr Pranab Mukherjee once said, taxes should be extracted out of the citizen without he realising it! Like a bee that sucks honey from the flower! He quoted Kautilya. But well, GoI has always been a very efficient bee. They make it sound like there is not much of a tax.
This figure I have put here is possibly an average or a median, may be. But the real tax varies between 80% at the maximum and close to 58% at its minimum. Please do not think that this 58% is for the poor people. You will be mislead. On most occasions, the least is charged on the rich and the poor pay the maximum out of their salary as taxes!
No wonder then people are not really keen in paying taxes. Particularly, when after having taken so much of my money, you give a secondary treatment, what will you do? Try all possible ways to avoid paying taxes. So what you need to do is really, reduce such a phenomenally high taxation to palatable levels. All inclusive taxes should not be more than 20% for an individual. This should include Income tax, GST, corporation taxes, multiple levels off taxes such as corporate tax, wealth tax etc.,
Make Tax Payable.
As a first step, please merge municipality taxes, numbering almost eight across the country, to one! Second step, remove or scrap income tax! Third step, over the next five years, remove municipal corporation taxes. There should be, but one tax across the nation and that will be GST!
This will encourage compliance! And better revenue for the government.
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