Saturday, January 11, 2014

Imagine there is no income-tax to pay!

Dear Comrades,

Imagine there is no income-tax to pay!

Well, it might sound like straight from a John Lennon song. But the fact is the opposition BJP is indeed pondering over a path-breaking proposal to overhaul the entire taxation system in a bid to end corruption and black money generation and raise discretionary spending in the economy.

The BJP parliamentary board will shortly consider a proposal to abolish all taxes – both direct and indirect – and replace them with 2 per cent tax on all transactions routed through banks.

If the proposal is approved, it will become part of the party’s vision document for 2025 and also its manifesto for the Lok Sabha elections.

The proposal first floated by Pune-based thinktank Artha Kranti (meaning economic revolution), moots abolition of income tax, corporate tax, excise duty, customs duty and service tax currently levied by the central, state and local bodies and replacing them with an one-point impost on all transactions.

The idea is to remove the multiplicity of taxes, simplify the entire structure, reduce transaction cost and make it more transparent, customer-friendly. Only import duties and anti-dumping imposts to regulate dumping would be retained in this model. The model is based on the presumption that if all banking transactions can be taxed at a minimal rate, the revenue accrual would be much more than the total collection under the existing model.

Industry experts say abolishing income-tax and other levies and replacing them with some other suitable form of revenue is feasible and even desirable, although such a move would militate against social equity.

Ficci president Sidharth Birla described the proposal as ‘aspirational’. “If the steps proposed enhance revenue by broadening and broadbasing the taxpayer base and help improve transparency of regulatory framework, we will tend to welcome these aspects."

The proposal, Birla said, would involve hard arithmetic as the revenue losses would have to be recovered from other sources while stressing that India needs a stable, equitable and a friendly tax regime.

PHDCCI president Sharad Jaipuria said: "The personal income tax should be reduced or abolished with alternate sources. I believe the government has the potential to generate revenue from other sources which are unexplored yet."

While pointing out implementation of the tax proposal is within the realm of possibility, some experts also opined that it has the potential to deal with menace of blackmoney.

“...It may reduce corruption and collusion with the government agencies. It may remove the tax burden from individual as well as corporate taxpayers. The taxpayers will also not indulge into practices like falsification of accounts, money laundering and other illegal ways of tax evasion," said Girish Vanvari, Co-Head of Tax, KPMG in India.

He said, however, that a comprehensive and holistic analysis is required before going for such a drastic reform.

Global tax consultant PwC India, however, expressed apprehensions saying that abolition of income tax would be against the progressive system of revenue collection.

However, proposals made on similar lines have not seen the light on the day in Brazil and the US.
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