An archaic and complicated tax system, with too many amendments, not only confuses the taxpayers but also leads to leakages and corruption
A complicated tax system in India with a six-decades-old Income Tax Act 1961 with too many amendments in the form of a lot of confusing patchwork is in force. Likewise, ever since the reformative step of introducing the Goods & Service Tax (GST) Act was introduced on 1st July 2017, there has been a regular practice of changing tax structure in an ever-confusing GST regime with too many confusing and complicated provisions incorporated in the system.
An altogether new tax regime should be introduced without patches of useless and largely misused exemptions. Implementation of Raja Chelliah Committee recommendations to fix the highest tax slab at 30 per cent to be in tune with most countries in the world, had largely abolished the practice of converting black money into white money. Gradually increasing this highest slab also through imposing cess and surcharges has undone the good achieved.
The highest tax slab of 30 per cent should be restored so that people may find it advantageous to bring complete income to books. Rather a permanent Voluntary Disclosure Scheme should be introduced whereby provision may be there in tax-return to declare at the highest suggested tax rate of 30 per cent, any income without disclosing the source of income. This will make cash transactions, especially in property deals accounted for if registration fees on the property are also reduced to say just three per cent. Names of all those disclosing incomes under the suggested highest 30-percent slab should be on the website according to income disclosed so that status-conscious persons may race to disclose more incomes.
Basix tax exemption should be fixed at rupees five lakhs abolishing most tax-exemptions including on charity, donation, contribution to political parties and even agricultural income which are largely misused. An ordinary farmer does not earn more than rupees five lakhs per annum, and the provision is grossly misused by ultra-rich persons including known celebrities to declare their unaccounted income as agricultural income through some village-land purchased only for the purpose without practically having any agricultural produce.
Income Tax slabs can then be 10 and 20 per cent for incomes between 5-10 lakhs and 10-15 lakhs respectively and thereafter 30 per cent for the rest. LK Jha committee recommendations to make the calendar year a financial year should be implemented to be in line with most countries of the world, thus abolishing another British legacy of following April-March presently as a Fiscal Year. It is ridiculous to have different depreciation rules for Tax and Corporate audits. There should be a single and unified Tax and Corporate Audit.
Rather than concentrating more on small cash transactions, all sale-purchases above rupees 10000 must be compulsorily through bank transactions. For this, transaction charges on credit cards should be slashed down to just half per cent (GST-exempted) which too to be borne by the central government with all incentives on purchases made through credit cards abolished. Present high two-percent transaction charges on credit cards make traders charge it separately from customers especially where trade margins are low. Such a system will fetch much higher tax revenue for the government, than through half-per cent transaction-charges to be borne by the government.
Banks issuing credit cards will get much more earnings even with a half-per-cent transaction charge because of the manifold use of credit cards. Two sets of credit card machines should be compulsory for every GST-registered dealer dealing in cash to avoid payment receipt through credit cards with the usual excuse that the swapping machine is out of order. Strict action must be there against those refusing payment through credit/debit cards.
The input-tax-credit system in the GST-regime in manufacturing is the biggest corrupt practice of tax evasion where left-out GST invoices by ordinary customers are sold by traders to consuming manufacturers or producers to avail false Input-Tax-Credit where cash is paid back by traders to those purchasing left-out GST-invoices of actual consumers bringing more currency in circulation, this being the reason of basic motive of currency-demonetisation being failed where currency in circulation rapidly increased rather than projected decrease. An annual forensic audit may be made compulsory on claims made for Input-Tax-Credit by manufacturers/producers to avoid false claims of excessive input tax credit in these sectors. Rather study should be made if, with the abolition of an excessively high 18-percent GST slab, Input-Tax-Credit can be altogether abolished from manufacturing/producing sectors, retaining it only on tradable commodities.
But such reform in the Input-Tax-Credit system can be practically possible with drastic reform in the GST tax structure wherein initially only three tax slabs of 6, 12 and 30 per cent may be there abolishing all presently existing GST rates. India is the only country that has so many GST rates. Gradually even slabs of 6 and 12 percent may also be replaced by a new 10-percent tax structure. Zero-percent GST may only be retained on totally unbranded raw materials that cannot be consumed without giving a finishing touch like agricultural products, fish, meat, cotton yarn etc.
All items of long-term use like cars, air-conditioners, TV sets, refrigerators etc. may attract 30 per cent GST while their parts may uniformly attract 12 per cent GST. Unmindful policy framers brought clutch-plate and clutch-bearing under different GST slabs of 18 and 28 per cent. Likewise, similar items sold by confectioners like sweets, biscuits, napkins etc. attract different GST slabs with luxury sweets causing diabetes attracting just 5 per cent GST.
Invoices for items like gold jewellery can be drawn in two parts, one for metal and embodied items and the other for making charges so that the suggested 12-cent GST may be payable only on making charges. Cess on extra-luxurious items should be replaced by additional GST slabs in multiples of 60 per cent, also bringing petroleum products under the GST regime to ensure uniform pricing of petrol and diesel in all states. Abolishing an 18-percent GST slab will be more than compensated by clubbing lower slabs of 3 and 5 percent into a single 6-percent GST slab. The input-tax-credit (ITC) system should not apply to non-tradable commodities and services like has been done, and rightly too, in the case of car expenses for non-commercial use.
With the GST slab of 18 per cent abolished and the service sector attracting just 12 per cent GST, those with income of rupees ten lakhs or more (instead of the present rupees 20 lakhs) can be brought under the GST regime like was the system before the GST-regime. It is illogical to keep lawyers out of the purview of the GST regime. The useless system of Tax-Deducted-At-Source for GST, which is hardly used in practice, should be altogether abolished. Otherwise, any such deducted tax should be auto-reflected in the GST accounts of affected ones, abolishing the cumbersome practice of filing a new monthly return to get credit for deducted GST.
All government payments can be considered to be exempted from GST to avoid unnecessary government accounting by putting tax from one government pocket to another. It is illogical that some premium postal services like Speed Post may attract GST while other postal services do not attract GST. Even illogical postal rates (both inland and foreign) need simplification for the equal rise of postal tariff for the equal rise in slab-weight in multiples of 50 gms. of inland postal-article with all postal tariffs being in multiples of rupees ten except for registered newspapers and post-cards which may cost rupee one with the abolition of outdated Inland-Letter-Cards. Presently a postal-article weighing 200 gms sent locally by reliable and fast Speed Post costs just rupees 30 but if sent by unreliable ordinary post, it will cost rupees 50. Likewise, foreign-mail tariffs can be fixed for 20 gms or part slab-weight independently for air and sea-surface-mail.
(The writer is an RTI consultant; views expressed are personal)
