TAX REFORMS

TAX REFORMS

 

 

 

 TAX REFORMS

The Indian Taxation System consists of different types of Taxes.

Some of the main taxes are:

  • Excise Duty
  • Sales Tax
  • Octroi
  • Services Tax
  • Transaction Tax
  • Income Tax
  • Import and Export Duties

There are several drawbacks in the present Taxation System. Some of them are highlighted here below:                                                                                                     

  1. There are too many types of taxes leading to multiple taxes on the same product at different levels.
  2. The Tax laws are very complicated
  3. There are frequent amendments and modifications in the laws
  4. There are a large number of vague and complicated clauses
  5. In view of the above there are different interpretations leading to disputes and litigation. Thus a lot of manpower and time of the Tax Departments is wasted in these legal matters.
  6. The income of an Individual is taxed at Gross Value .
  7. The income of other than an individual ( business, industry etc.) is taxed at Net Value ( Gross Income less all his expenses). Thus by showing more expenses than income i.e. a Loss, many of these entities do not pay any Income Tax.
  8. There are several exemptions granted to different categories for computing the Income liable for tax. With frequent amendments these complicate the calculations.
  9. Investments are made by individuals from their incomes after tax has been paid. Incomes/returns received on such investments are included as income and taxed once again.

                       While all such incomes/ returns on investments like interest on  Bank Deposits are taxed, the Dividend received on Company

                        Shares are not taxed at the hands of individuals.

                         

  1. Tax is deducted at source (TDS) from incomes like salary, pension, interest on Bank Deposits, etc. A person is required to file his/her Income Tax Return to claim a refund in case of any excess deduction at source.

 

  1. At present a large number of organisations like charitable institutions, trusts, Political parties, etc .enjoy tax exemptions. It is common knowledge that many of these organisations are set up for dubious purposes and mainly to avoid taxes.

 

SUGGESTIONS:

  1. The Tax Laws should be made simple and precise having very few clauses. Should avoid ambiguities so that everyone is able to understand them clearly without any doubts.
  2. Every Individual / firm/ company / organisation/ etc should be given a Unique Number like the PAN or Aadhar Number.
  3. The Tax Rates should be kept low say at 3 to 4 percent.
  4. There should be no exclusions or exceptions.

      5.BASIS OF TAXATION

  • Individuals The gross income should be the basis for computing tax in all cases of Individuals.

 

  • Other than Individuals

                                   The following could be considered for computing the Tax

         Manufacturing enterprises:  Gross Sales

  • Wholesale dealers/ distributors:  Gross commission/ discount received
  • Retail dealers/ sellers:  10% of ( 50% of gross purchases during the year) {assuming that 50% of gross purchases are sold during the year and the commission is around 10%}

 

  • Other Organisations
  • All organisations like Political Parties, Trusts, Charitable Institutions, Educational Institutions, Religious Institutions, etc should also be taxed on the basis of their              Gross Receipts

 

  • Agricultural Incomes
  • Even Agricultural income could be considered for tax so that all categories of persons are made to contribute for development of the nation. However the rate could be kept low say 0.5% to 1% of the amounts paid by the Government procurement agencies to the farmers against purchase of agricultural produce at support prices.

 

 6. In other words the concept of Sales and Sales tax should be applied only in the case of Manufacturing Agencies. In all other cases the concept should be to tax the gross purchases. As purchase bills / invoices will be available the tax can be easily computed. The need to compile sales/ stock statements, etc can be done away with.  The bills / invoices should compulsorily quote the PAN number of the seller and buyer.

 

  1. The tax on all manufacturing units could be levied only by the Central Government.
  2. The tax on other than manufacturing units could be levied by the respective State Governments.
  3. There should be a constitutionally guaranteed system of revenue distribution of taxes between the Central and State Governments as well as between the State Governments and all the Local Bodies.
  4. There should be no other taxes like Excise Duty, Entry Tax, Octroi, Service Tax, etc.

     11. Everyone including Individual, Company, Firm, Organisation, Trust, Political Parties, etc., should prepare a Balance Sheet of their Assets              and Liabilities at the end of the Financial Year and submit it along with their Income Tax Returns.

              In this regard the following could be considered

  • Those with Gross Incomes less than RS. 5, 00,000/- need not prepare and submit a Balance Sheet, though they may have to submit their Income Tax Return.
  • Those with Gross income of more than say Rs. 20,00,000/- should get their Balance Sheets certified by qualified Chartered Accountants.
  1. There should be extensive use of computer/ Information Technology for capturing data, tax collection, submission of returns, monitoring etc. This will enable full compliance, transparency, statistical information, eliminate loopholes, minimise evasion, and generation of maximum revenue at very low administrative costs.
  2. At present a wide variety of transactions are taxed under the ‘Service Tax’ concept. This again needs to be eliminated at the individual level as the service providers will be taxed on their gross receipts.

         For example Service Tax is collected on the premiums paid on Life insurance policies from the individual insurers. Instead the Life                      Insurance Companies will pay the Tax on the total premiums collected during the year. They can add this to the cost of premium to be                collected from the individuals.

 

  

The Main concepts  are :

 

 Tax at the Bulk/Gross level instead of at the Retail Level.

Every citizen should take pride in paying tax and contributing for the common good of all.

Taxation should be painless and easy to comply with.

Tax rates should be reasonable and kept low.

All exemptions / concessions should be eliminated.

There should be a Single Form of Tax eliminating the plethora of taxes.

The Tax collected by the Central government should be shared with the State Governments in an equitable manner and should be Constitutionally provided for.

Similarly the Tax collected by the State Governments should be shared with the Local Bodies in an equitable manner and should be Constitutionally provided for.

The Tax money collected should be used with utmost caution and circumspection avoiding wasteful expenses.

The reports of the CAG should be taken seriously and those responsible for any revenue loss should be severely dealt with.

Author

Kaushik Vichar

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