Lets examine ways for a greater revenue collection for the Government in India with modest and reasonable rates of taxation. People in India are willing to pay taxes, but a people friendly system is not in place – this needs to be changed.

Present Scenario For Revenue Generation

  1. Our Constitution has conferred on its citizens the right to “Keep Mum” that is ‘no one can be forced to give evidence against oneself’. It is for the prosecution to prove guilt to the hilt.  This sacred right has been denied to the citizens under our Revenue Laws in the name of Collection of Revenue.
  2. Almost all the Revenue Laws require that its citizens/business persons submit fullest financial details of theirs year after year periodically to the Revenue Authorities so that the Authorities can decide whether one has correctly calculated and paid tax dues.  Even delay in submission of returns, involving no tax evasion, is visited by penalty. There are number of circumstances where much against own wish, some of us may be able to submit the details (tax returns) in time.
  3. Theoretically, though not possible, if every individual decides not to submit Tax returns taking shelter behind the Constitutional provisions cited above, what the State can do.
  4. It is conceded by every law abiding citizen should honestly pay the tax dues to the State for the general welfare of all, in return of services and goods provided by the Society.
  5. Most of us are “Willing to pay taxes as a duty to the Society; but people-friendly system is not in place.”
  6. THIS PAPER SEEKS TO SUGGEST A POSSIBLE WAY OUT OR SOLUTION TO THIS VEXED PROBLEM SO THAT BOTH THE STATE AND ITS CITIZENS ARE HAPPY.

Aims and Objectives

  1. Greater revenue collection for the Governments with modest and reasonable rate of taxation.
  2. Least Paper work – Elimination of Tax Returns.
  3. Widest possible Tax Base – covering almost everyone.
  4. Simple Taxation Law that can be understood /comprehended by even illiterate persons with normal prudence.  Even the lowly person should know how much one has contributed and the satisfaction of having done so.
  5. Rates of taxation so reasonable that at least 90% of persons remain totally honest and remaining 10% of persons do not have much scope or temptation of avoidance of tax.
  6. INCOME/PROFIT is an indication of services/goods produced by the individual i.e. it is representative of Wealth Generation by the individual member of the society. In order to encourage the Wealth Generation effort, INCOME as such should not be subjected to any Taxation.
  7. Similarly household SAVINGS IN THE BANK are in the nature of moneys available to the society through the Banks for PRODUCTIVE PURPOSES. Therefore, SAVINGS IN THE BANKS should be treated as CONTRIBUTION  BY THE INDIVIDUALS to be used for productive purposes and hence should not be subject to any TAX.   It should be treated on par with equity where dividends enjoy unlimited exemption.  Presently, while on Savings Account the depositors get a very insignificant amount of interest (which is not sufficient even to offset the inflation) individuals in the high income brackets have to pay as much as 33% tax on this miniscule interest.
  8. Minimum human involvement in tax computation and collection and least interface between people and tax officials. This should keep corruption or mal practice to the minimum.
  9. 24 x 7 unobtrusive surveillance and only in case of serious violation/infringement of law, the individuals would be called to be questioned.  That is rule by exception and targeted investigation. Law abiding persons would have no problem whatsoever.
  10. Tax revenue to be shared automatically as per one agreed formula among Central-State-Local ((like Municipality, Zilla Parishad, Panchayat) governments.   This formula can be reviewed periodically by the Finance Commission.
  11. The main task of the Finance Ministers/Financial Authorities would then be proper allocation of the funds and their utilization.
  12. In times of contingencies like war, calamity, emergency Finance Minister should be able to fine tune the rate of taxation which would be able to generate additional revenues in a jiffy with least burden on the tax paying people.
  13. Adequate Social Security coverage especially in the field of Health and Education.

The above list is expansive and not exhaustive.  At best they are illustrative or suggestive.

Note: It is acknowledged here that the following is not an erudite presentation.  The figures cited are by no means accurate. At best it is only for the limited purpose of illustration. This suggestion is meant to serve only as “Food for Thought” so that something concrete emerges after a nationwide intensive and exhaustive discussion by experts and thinkers.

Now straight to the suggestions.   The humble submission is that kindly go through the suggestions without any preconceived notion. If they catch the imagination of the READERS they are at liberty to expand, elucidate and improve upon the suggestions so that best possible solution emerges.

 

Present revenue collection                               (in crores)

                        Corporate Tax                                 359,990

                        Income Tax                                      172,026

                        Wealth Tax                                              645

                        Customs Duty                                  151,700

                        Central Excise Duty                        164,115

                        Service Tax                                         82,000

                        Total U.T. Taxes                                     1,973

                        Total                                                   932,439

                        State Governments                       300,000 (assumed)         

                        Non Tax Revenue                           125,435

                        Aggregate Total                         1,357,874     

 

Following is an attempt whereby we can generate revenue of 15 lakh crores with least human intervention with minimum Paper work.  It is for every one of us to decide whether this method should replace the present revenue collection systems.

WILLING TO PAY TAX  : BUT PEOPLE FRIENDLY SYSTEM NOT IN PLACE

It is the workforce that drives an economy.  Our response to it today must be radical and revolutionary – yet simple.  Hence their earnings and savings in the Banks should not be subject to any levy.  It is the Benefits individuals enjoy/derive should be subjected to taxation for generating revenues for the governments.

Transparency will come if we take help of technology so as to avoid human intervention and discretion.  Humans can lie; machines cannot. Government must push for technological reform

Filing income tax returns is something everyone dreads. That isn’t without reason, because the sheer complexity makes most mortals concede defeat and run to their chartered accountants as they are not comfortable with figure work. (TechTree)

 

“Pluck the goose as to obtain the largest amount of feathers with the smallest possible amount of hissing” – Kautilya

“The duty of ruler : Gladden the people and do not scare them; make things easy and do not make them difficult” – Hadith

AIM

1) Replacing all the existing multifarious taxation legislations like Income Tax, Central/State Excise, Sales Tax/VAT, Service Tax, Property Tax, and Octroi-Local Taxes with ONE SINGLE UNIFIED  REVENUE COLLECTION SYSTEM.  This system envisages covering almost every single individual(s)/non-individual(s), greater revenue collection, least human intervention, practically no Paper work, zero cost of collection/compliance, ensuring privacy to the tax payers, no interface with revenue officials who are not known to be  so virtuous and honest.

2) A taxation regime in which citizens are free and encouraged to CONTRIBUTE their maximum by way of PRODUCTION of goods and services, and increase their SAVINGS in the Banks so that they are available to the Society for productive purposes.

3) It is the BENEFITS which one derives/avails should be subjected to taxation.

4) Every individual has the RIGHT to ACQUIRE and SAVE, and has the RIGHTFUL DUTY to share his possession with others.  One way of sharing with others is by paying a percentage of “Money spent by him for his OWN BENEFIT” as “TAX” for the “GENERAL BENEFIT” of people at large.

5) Introduction of REVENUE COLLECTION SYSTEM which is in an Auto-pilot mode and people-cum-government friendly.

Proposal

In place of all the existing Revenue Legislations, we should have just one simple Unified Tax Legislation.

It may be called “Kalyan Kar (कल्याण कर)” – “KK” for short.  It means that this levy is meant for the Welfare (कल्याण) of the Society.

Taxation should be solely on the basis of BENEFITS derived by individual (s) on goods and services.  If I spend Rs.10,000 p.a. I should be charged Levy on Rs.10,000.  If I spend Rs.50,000 p.a., I should be asked pay tax on this sum.

Broadly speaking the OUTGOINGS (WITHDRAWALS) from the Banks represent, sums spent on various goods and services.  After all we withdraw money from the bank for our own use/satisfaction BENEFIT.

Even the revenue authorities ultimately take recourse to Bank Accounts to detect and establish tax evasion.

     Annual Average total withdrawal by way of cheques passing

     through Clearing House alone –              120 lakh crores per annum.

 NOTE – Intra Bank transactions/transfers, debit/credit cards, ECS, cash withdrawals across the counters and ATM, etc. are being ignored here.    In that case the figure may be around 300 lakh crores plus. For ease of illustration we assume a modest figure of Rs.150 lakh crores per annum.

Presently almost 90% of personal         tax collection is by way of TDS.  Hence why not shift to the mode of collection of revenues 100% by of TDS.

 

Typical illustrations –

(A)If only Personal Income Tax of Rs,1.72 lakhs plus Service Tax of Rs.82,000 = 2,5 lakhs are to be abolished, a mere 2% TDS on 150 lakh crores  would give an yield of 3 lakh crores.

(B)If corporate tax + Personal Tax + Service Tax amounting to Rs.6.25 lakh crores are to be abolished, a mere levy of 5% TDS on 150 lakh crores would give a yield of Rs.7.5 lakh crores.

In short, a levy of as small as 10% TDS on WITHDRAWALS of roughly 150 lakh crores alone would give an yield of Rs.15 lakh crores virtually without any Paper Work or Human intervention almost at zero-cost.

The actual rates of TDS could be somewhat on the following lines.

Non-cash withdrawals Cash withdrawals
Individuals/non profit making NGOs 1% 3%
Others – business/profit making 5% 8%

NOTE -It may be noted that the entire tax burden would ultimately be borne by the individual consumers.  Therefore, a nominal TDS has been suggested for individuals/non-profit making organisations. To discourage Cash transactions, marginally higher TDS on Cash withdrawals has been suggested.

OR

Somewhat following graded TDS could be considered:-

1% TDS for Level A

2% TDS for Levels between Level A and Level B

3% TDS for Levels between Level B and Level C

And so on even up to say 25%.

If once it is agreed that TDS against BANK WITHDRAWALS could be considered, the actual aggregate BANK WITHDRAWALS may be worked out and a graded TDS structure decided upon so that Governments are able to raise around Rs.15 lakh-crore plus revenue.

 

Following additional points may be kept in view –

To discourage cash transactions (Cash in economy facilitates evasion/corruption/black money generation as well as illegal cross-border activities) a higher TDS has been suggested.

Recently newspapers suggested that one van of a business person was carrying more than one crore of rupees and it was way laid by their own staff members with their inside information.       Question is why anyone should need such a huge sum of money in cash.  Why not use Bank Instruments instead.

Exemption

Exemptions on the one hand gives arbitrary discretionary powers to the Government to decide how much can be exempted.  On the other, it offers scope for the unscrupolous persons to evade tax by devious means. Therefore, DO AWAY WITH EXEMPTIONS ALTOGETHER.  Let citizens pay TDS on every single rupee being spent by them.  Rates suggested are very nominal – no one would mind paying it; while बूँद बूँद से सागर भर जायेगी.   

Progressive Taxation – In the context of India where there is such a great disparity of living standards amongst different segments of its population, Progressive Taxation is a must.  It can be sought to be achieved as under –

(a) As Aadhaar implementation is likely to take time, let RBI allot a Bank Identification Number (BIN) to each individual/non-individual account holders. As per newspaper reports, RBI is keen to monitor all banking transactions. The idea being introduction of a system which would ensure “An automated data flow from the IT systems of banks to Reserve Bank with no manual intervention which will enhance the quality and timeliness of data.

(b) While one can be free to have multiple Bank accounts, every single Bank account should be tagged on to the BIN so that all the Bank accounts (withdrawals) of an individual/non-individual are reflected against the BIN.

(c) Then stipulate that if the total withdrawals exceed particular slab(s), a higher TDS would come into operation.

Some of the steps need to be taken are as under, so that almost all the cash transactions are channelized through Banks.

  1. Place a ceiling on cash withdrawals that an individual/non-individuals like trade, business, and organisations can make on any given day.
  2. Utility Bills like Telephone, Power, Gas etc., (if above, say, Rs.500) are to be paid by non-cash mode only.
  3. 3.     Similarly, there should be a ceiling on cash-retained-in hand on any given day.  The excess cash in hand should compulsorily be deposited in the bank promptly. Cash in economy facilitates evasion/corruption/black money generation as well as illegal cross-border activities. Electronic/non cash transaction would  greatly curb this national menace.
  4. Any breach should be visited automatically by seizure of the entire cash.  The money so seized should be subject to confiscation unless the party gives satisfactory evidence to the satisfaction of the authority, within a prescribed time frame.
  5. In order to comply with these requirements Banking Services are to be upgraded like 7-day working hours and introduction of two shifts.  Incidentally, many of the revenue officials likely to be affected by this Scheme can be easily absorbed for the 7-day working and two shifts.
  6. By way of bringing transparency authorities can think of introducing a column whereby the individual(s) would be required to state in the cheque or ATM withdrawals the REASON for withdrawals, e.g. Household expenses, rent, utility bill, loan and the like.

This way, we would have achieved the wish of the Union Finance Minister that “We need a Tax System which Generate Revenue on a sustained basis without use of Tax Collection methods at the end of each year to meet the targets.

Additionally whenever the Finance Minister requires to raise more revenues for meeting contingencies like famine, drought, natural calamity, war etc. all that he/she will have to do is to increase the TDS slightly for a given period.  On a figure of Rs.150 lakh crore, even as little additional TDS as 0.7% would give a yield of Rs. 1 lakh crores and no one would feel the pinch.

The TDS so collected, can be transmitted by ECS simultaneously to the Government Account as revenue.  The sums so collected by the Banks can be apportioned between the Central, State and the Local Self Government by an agreed formula to be recommended by the Finance Commission and these ratios would be periodically reviewed by the Finance Commission itself.  For example, in the case of Mumbai the TDS so collected by the Banks located in Mumbai would be apportioned automatically in the proportion of a:b:c respectively among the Central, Maharashtra and the Brihanmumbai Mahanagar Palika.

Note – As in the case of GST (under active consideration) States may also be empowered to levy additional TDS on the above lines in their respective jurisdictions.

As an incentive and reward to the Banks for its vital role of collection of government revenues at source, Banking industry as such can be completely exempted from paying any tax to the government.  Banks can also retain the entire profit with themselves.

As a further incentive Banks can be given a percentage of the TDS so collected by them.

Banks should offer services like signature verification, Bank Drafts, transfer of money etc. against a very nominal/free of charges.  This way it would encourage more and more people to open and operate bank accounts.

Vigilance – However simple and reasonable legislation one may bring out, there are bound to be some loopholes in the Statute and human ingenuity and greed being what they are, some unlawful elements are likely to somehow hoodwink the authorities and breech the law.

It is sufficient to observe that this possibility can be plugged to a very large extent with the help of NATGRID (with about 11 agencies under it in place).  It can keep round-the-clock vigil on the transactions through the BIN tagged Bank Accounts, in coordination with other agencies– especially an elite team culled out of present revenue departments.

Wherever there is ground for suspicion it can come down heavily on the erring parties.

NRI/NRO Account holders – It is strongly felt that the artificial distinction between resident accounts and NRI/NRO accounts should be done away with. They bring valuable foreign exchange into India. Their money accumulation/deposits are going to remain in India only as Indian Rupees.  In 2012 foreign exchange remittance by NRIs was $69 billion.  Therefore, if anything by being away from the country they are no burden on the country in terms of employment and use of our limited resources.  In fact, they should be extended greater benefits.  If not, please treat them on par with resident account holders. They continue to be loyal citizen of this country. Treat NRIs on par with other Indian citizens.

SOME OF THE MAJOR BENEFITS

a)     Everyone in the country would be free to produce, save and spend as much as one would like to.  Privacy and dignity would have been restored to everyone.  Citizens would be freed from the painful and onerous responsibility of periodically submitting TAX RETURNS to the not so honest Revenue officials, and they do not have to wait for the verdicts of the revenue authorities.  It will bring in second Swaraj.

b)    The prices of all the goods and services would come down significantly across the board.

c)     The entire country would virtually become Special Economic Zone.  Still Governments would have the option of offering incentives for industrialization and similar purposes for any particular area/scheme. We can compete successfully in International market.

d)    Practically a uniform price would prevail for various commodities/services—the dream of any government.

e)     Tons of Paper, Paper work, time and the untold tensions of the general public as also revenue officials would be a thing of the past.

f)      Since demand for Cash would be significantly reduced, we can save lot of Security Paper for printing of Notes. We can think of demonetizing high value currency notes like 500, 1000 etcetera.

g)     Say an individual has an income of Rs.8 lakhs which he/has earned by providing goods/services to the people.  This amount is subject to tax. However, if the individual avails of a Housing Loan of say Rs.1 crore and starts living in the immoveable property so acquired, paradoxically the individual is not required to pay any tax on this enormous benefit simply because the amount is defined as LOAN.  This unintended benefit is further compounded by the fact that he/she gets a rebate on interest paid till the entire LOAN is repaid. In the scheme suggested herein, the individual will be required to pay tax on Rs.8 lakhs + Rs.1 crore in that Financial Year. No doubt while repaying the LOAN the individual will not be required to pay tax once again.

h)    Pay Roll Staff/Bank staff/Drawing and Disbursing officers will not be required to keep abreast with the various provisions of I.T. Act and make deductions and credit amounts so deducted correctly within the stipulated time.  Presently for this onerous responsibility while the staff or their institutions do not get a single paise as rewards, they are subject to prosecution for any failure.   There are numerous occasions wherein there is dissatisfaction between the individuals and the banks and Pay Roll Authorities.

i)       Evidently there will be much less scope, need or temptation for tax-avoidance.

j)       Inspector Raj – the fountainhead of Corruption would have ended.

k)     A simple, uniform and cost effective legislation would have been in place.

l)       “With the rationalisation of  tax rates, there would be increased disposable income and public will be able to save and/or spend it in any any manner they wish to; which, in turn, would lead to increased investments and production in the industry, and help in propelling the economy to higher growth paths.”

m)  BLACK MONEY – Assuming that one has Black Money of say Rs.600 crores. Under the suggested scheme one would prefer to put his money in the Bank and earn interest on it.  As and when he makes withdrawal over a period of time, he would be paying a nominal TDS, which would be more profitable.  Also if someone were to steal/snatch the stowed hard cash (black money), one cannot go to the Police as he would have to first answer why he had retained such a large money and why could not deposit it in the Bank.

n)    The watch-word is while spending money for one’s own benefit, pay a very insignificant percentage of money so spent as TDS for the BENIFIT of the Society at large.

  • o)  हमारे नागरिक चैन की नींद सो सकेंगे!

Our focus should be more revenue with least involvement of human beings.  The subject is endless and no one can do justice to it – however much one may write or say.  Also no legislation can be absolutely perfect; there will still be some who would like and successfully circumvent the laws.  ALL THE SAME WE SHOULD CONTINUE TO IMPROVE CONTINUOUSLY.

It is hoped that the above Scheme will be able to achieve the GOAL.  Whether it is so, is for the general public and thinkers, law-makers to decide.  No doubt this Scheme needs to be improved and refined.

Some typical examples if the above Scheme is implemented.

Your income Rs.5,00,000; you spend Rs.1,00,000— pay tax  around Rs.1000.

Your income Rs.5,00,000; You take a housing loan of Rs.10,00,000;  Your tax liability –  Rs.15,000

Compare the above and similar cases and work out the tax liability as AT PRESENT by way of Direct Tax and Indirect Taxes.  DECIDE FOR YOURSELF WHETHER THE SCHEME SUGGESTED IS A BETTER WAY OF RAISING REVENUE FOR THE COUNTRY!!!

To sum up, every time a citizen spends money for OWN BENEFIT, he/she agrees to pay a percentage of it as TDS for the SOCIETY’S BENEFIT as KALYAN KAR.

Citizens would be able to put in their best for wealth generation.  Income at best is a potential benefit.  Spending is actual benefit – on which one has to pay tax.

THUS our BANKS, by far the most efficient and organized Institution, would become the prime nodal agency/focal point in the economy of this country – which it richly deserves.

We strongly feel that Banking Industries on whom maximum burden falls for calculating/determining and recovering TDS, for which they do not get paid, should collectively take up this Scheme with the governments on the above lines.  They could profitably associate RBI, IBA, Bank Unions and possibly  in association with Pay Roll Authorities,in this exercise.

May Almighty show us the way!!!

Some additional points for consideration.

  1. Government should respect privacy of the individual.  The individual should not be routinely required under the threat of law to disclose all his financial details so that the revenue authorities are in a position to judge/decide whether tax has been correctly worked out and paid.
  2. As in the case of criminal offence – the onus to prove guilt should be on the State.  In order to enable to gather and monitor the financial details of citizens, it has been suggested that every single bank account should be linked with Aadhaar or  RBI allotted Bank Identity Number.  This would enable for the authorities to zero- in on suspicious cases and pursue it – that is targeted enquiry.
  3. I would like to stand corrected.  If my income is Rs.5 lakh and I raise a bank loan of say Rs.50 lakhs; I am required to pay tax only on Rs.5 lakh.  Since 50 lakhs is termed as LOAN I do not have to pay tax.  But I am free to invest this amount in business or buying an immovable property and enjoy the benefit.  THAT IS SIMPLY BECAUSE IT IS CALLED ‘LOAN’ I AM AT LIBERTY TO ENJOY THE FRUITS (BENEFIT).  That is why the entire stress is on BENEFIT RELATED/LINKED tax.

Lastly, why not we tell the political parties that Our Vote is for the Party which promises in its manifesto that they would bring Revenue Laws on the above lines, if voted to power! PLEASE PONDER AND ACT. General Elections are less than one year away.

Bio of Author Who Has Requested Anonymity:

I started life at the age of 17 and throughout I was in Government service. Central Excise–Government of Maharashtra – Mantralaya–Army HQ–Ministry of Labour. I left Central Excise because as a timid person, I did not want to get into any corrupt practice. While in Ministry of Labour, I was posted thrice as Protector of Emigrants.  It was a hot bed of corruption.  Twice I could resist it.  Third time, in order to avoid being posted as POE, I took voluntary retirement when I was 50 years.  I have no regret about it.  Thereafter I served various charitable institutions as a volunteer. By God’s grace I am more than satisfied with whatever pension I get.  My two sons are well off and are supportive in every respect.  I could not have asked anything better.  I am grateful to God.
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