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Old 14th September 2014, 03:00   #1
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Default Reforming Finance in India

As we all know India is a country where the black money is probably the biggest issue raised in elections. We all talk about bringing in back but do we ever think why it is there in the first place? In my Opinion Indians are taxed way too much for the facilities that are provided to us.
Taxes in Gross would be

1. Income Tax - 0% to 30%+
2. VAT - 12.5%
3. Service Tax
4. Education Cess
5. Addition Taxes
6. Road Tax
7. Gazillion other tax

So if a person goes to buy a car say worth about 5lac he first has to give 1.5l as income tax to government and then on the 5 lac has to pay excise again to the government and then the road tax which varies from 6% to 15% to the government. For buying a car worth 5 lac he has to earn ~8lac and give 3lac to the govt which is more than 50% of the original price of the car. Correct me if i am wrong here though.

If we count them all together it goes way above 50% . Who in their right mind would pay 50% of their income when most of that is going to go somewhere they dont know. So these so called super rich people want to avoid all this and just send their money abroad through various means into different banks. If these taxes were lower, say maximum tax to be around 15-20% maybe all this wouldnt be created in the first place. People would stop hiding their income and start paying taxes as it wouldnt pinch them. Also transparency from the government to where the money is being spent like USA has started would be a welcome move to encourage taxes. We are a pretty huge country, one of the most populated in the world with people smart enough to make a very good living. If the taxes were lower maybe people would have more money to spend on goods, or pay their employees better salary and in turn the economy would improve. I think it would be better if everyone contributed a rupee then a few contributing a 100. A rupee from everyone would make more collection from the government and better lifestyle of every person. So what do you guys think. Should the taxes be lower? Should their be transparency on where taxes are spent.


About the subsidy - Its alrite from my side that government gives subsidy on various stuff but why give them to people who can afford paying full prices. Government should not be subsidizing stuff like fuel and electricity as it only adds burden on already limited resources. Cheaper stuff always results in wastage and misuse. If they want to subsidize something, subsidize the industries so they can compete with other countries on producing materials, Subsidize the local industries for export only if they match the standards required. Instead on giving people free food like they give to below poverty line people use that money to setup working places for these people so they can earn and make a living rather than live off the taxes we pay. Nothing rude or cruel in this. I see it as more of a oppurtunity to make product for the people and money for the Governmet. I think instead of encouraging foreign investment in India , the govt should first encourage local investment. Most of the economy is down right now not because there is not enough money but because people have lost their confidence in the Govt of India. Nobody is willing to expand their industry right now because there isnt enough push for them from the govt side. They arent getting enough encouragement with the government imposing new and new taxes and the imported goods getting cheaper.

The Cycle could be like

Taxes -> New Industries -> Unemployed Getting work and Govt earning money -> More people paying taxes -> Taxes for the initial get lower -> Everyone Happy


I see another USA happening here. Imagine it being cheaper to collect everything from different parts of the world and shipping it all to China, then assembling it then shipping it off to say some tax heaven and then to USA then Collecting it all in USA and assembling. That is where India is headed to.

Also I hate these toll plazas cropping up on every national highway. I know they are building new highways and new roads but this is what we pay our taxes and the extra road tax for. Rs 50 is not a very big amount but seeing the fact that these toll plazas stay for years and years it gets added up for a frequent commuter.

From
An AAM Indian suffering from Inflation, Bad Public Facilities, Bad Roads and still playing his part in paying all taxes, keeping clean the public places, trying to save govt aka his property hoping that one day it will all be put to good use so that his life and the others around him can lead a better life.
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Old 14th September 2014, 17:16   #2
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Default Re: Reforming Finance in India

Quote:
Originally Posted by V12Doc View Post
In my Opinion Indians are taxed way too much for the facilities that are provided to us.
Wrong. It's us honest tax payers who pay the income tax for the overwhelming majority that evade it. Get this, a measly 3% of Indians pay any income tax at all (for comparison sake, about 50% of the USA pays income taxes). I personally think the taxation rates in India are reasonable. 30% isn't exorbitant (many countries have it higher).

Personally, in a country with widespread tax evasion like ours, the Government has no choice other than taxing expenditure.

And yes, in an economy like ours, big ticket items (such as cars) will always be heavily taxed. I'm all for it.
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Old 14th September 2014, 17:35   #3
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Default Re: Reforming Finance in India

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Originally Posted by GTO View Post
Wrong. It's us honest tax payers who pay the income tax for the overwhelming majority that evade it. Get this, a measly 3% of Indians pay any income tax at all (for comparison sake, about 50% of the USA pays income taxes). I personally think the taxation rates in India are reasonable. 30% isn't exorbitant (many countries have it higher).

Personally, in a country with widespread tax evasion like ours, the Government has no choice other than taxing expenditure.

And yes, in an economy like ours, big ticket items (such as cars) will always be heavily taxed. I'm all for it.
50% of US pays income tax because people there are earning enough to pay them. And they are not taxed as heavily as we are. The inflation is low. Cost of items is very low. Obviously evading taxes also costs some amount. if that amount was given to the govt even maybe a bit more then people would happily pay the govt. I am a avid coffee drinker and I drink at Ccd all the time. I buy a coffee for 79 and with taxes is 110. That's like 40% tax on a food item. I am against giving free food to people by the government. I would rather have government set them up a livelihood. If the govt cannot setup a livelihood for them I am sure they can give incentives to people who can. If I am going to setup a business which employees 50 unskilled labourers then govt should help me set that up instead of giving away free food to the 50 unskilled labourers. This way they can earn their livelihood and at the same time do something productive that can help them live their and othe people lives better. This will not only create opportunities for the people of the country but also help these people live with dignity and self respect

Last edited by V12Doc : 14th September 2014 at 17:36.
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Old 14th September 2014, 17:50   #4
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Default Re: Reforming Finance in India

Interesting points raised, must appreciate you taking the time out to write all the stuff over here.
My view as the common junta in India is we pay tax as we simply cannot avoid it. Personally I do. You may call me opportunist, mean, whatever - the fact is I have absolutely no idea where the tax money (almost 50% of my salary) goes.

If I had a choice to put in even 75% of my taxed money - so say my income tax works around INR 1 Lakh - I would rather be happy to donate 75k of it to charities who I know need it -verified by the government. Atleast I would feel happy about it.

The fact is as GTO pointed out - less than 3% of us actually pay income tax- the govt. really does not gain a lot. The government officially and unofficially 'earns' mostly by selling Indian natural resources/assets - like Natural Gas coal, minerals, licensing etc. Why not eliminate income tax completely? Tax the expenses. Right now we do both.
The mismanagement of Indian finances is colossal. I can see things which just do not make any bloody sense. It is killing this country. We keep criticizing the Saudis by saying what will happen if they run out of oil? What will happen when we run out of natural resources?
No government will ever have the vision or the guts to set the things right. All any 'progressive' government will do is probably cut a bit of red tape and make it easier for the industrialists to make even more money (and hence contribute to the party fund) - which will work in the short term only.

Simple things like a single window clearance for all new business, faster, cleaner, dependable decision making, formulating policies for the next 50 years, incentive for manufacturing in India, making taxes easier and clearer for all (its a bloody mess), crack down hard on corruption (oh wait, no one can - they themselves are dirty) and black money.
The essence is India is rich country filled with poor people. People die of hunger and basic necessities - I don't think there is a more shameful thing in the world than that.

Maybe I have gone OT - but it is a huge topic and something very close to my heart.
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Old 14th September 2014, 17:50   #5
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Default Re: Reforming Finance in India

Interesting and debatable topic.
2 cents from my side. For government to collect more tax there are two options

1. Increase the tax base and try to bring everyone into the tax net. For example, a meager amount of Rs.500 p.a. for each kirana store in rural area and Rs.1000 p.a for each in urban area. Similarly target professions which are out of tax net. Virtually, impossible for any government in India to implement and still stay in Power. So the second option is
2. Introduce tax which everyone has to pay irrespective of their profession for example service tax, VAT etc.

I am personally in favor of 2 and giving relief to people who are part of 1, mainly salaried people.
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Old 14th September 2014, 22:17   #6
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Default Re: Reforming Finance in India

Quote:
Originally Posted by V12Doc View Post
xes in Gross would be

1. Income Tax - 0% to 30%+
...
7. Gazillion other tax
Simply put, a car buyer puts in way too much money in form of one or other tax while just purchasing the car. Everytime you get the car serviced, you pay tax. Toll Tax. Indirect tax on fuel be it the one powering your car or used in kitchen to cook food.

Reality is that there are very few honest tax, sorry Income Tax payers in India which prompts the government to increase indirect tax. IMO, its the indirect tax which is hitting the most, not the Income tax. I am OK for the Income tax I am paying, but I am not OK with paying a huge amount of Indirect tax on each and every litre of petrol/diesel.

I dont want to pay for parasite govt. operated OMC which can set benchmarks for inefficiency. Under the glorious quilt of subsidy, govt. has educed a lot of indirect tax which only God knows whereabouts of.

Next, Tax is OK, provided we get equivalent level and quality of service. The common man of India ( also the middle class, salaried class ) is untenable to do anything against the sheer injustice.
Domestic LPG costs way too much, so do all the energy/fuels required in day to day life. The medium opted by the govt. to levy heavy taxes make me think that this is cruel thinking by the leaders. IMO, if we reduce corruption and see the direct+indirect tax earned by the govt., the amount would be a handsome one, but somewhere something does not add up.

Corruption and wrong policies have much to do with it. Given our large population base, expanding tax payer base is not that difficult an affair, but the intention of leaders/govt. sure is.

Quote:
Originally Posted by GTO View Post
I personally think the taxation rates in India are reasonable. 30% isn't exorbitant (many countries have it higher).

Personally, in a country with widespread tax evasion like ours, the Government has no choice other than taxing expenditure.
30% is way too much given the level of services we get from govt. Lets agree even on that front that 30% is OK, but despite collecting funds, where are results ? Defence ? NO, we still are relying on external help. Indian individuals go to US, work in BAE, NASA, etc. but why cant India build a strong industry to support defence ? EG : LCA. LCA was prompted after a Nashik Based businessman, Mr. Bachubhai Patel, offered to product the joystick ( or some similar component ) for Mig 21. That component was a bottleneck for local production of Mig 21.
We are still day dreaming for LCA.

Infrastructure ? Less said the better.
Law and Order ? Lets not spend server space on this one.

Where do we stand now as a nation which justifies 30% of Income tax coupled with hell lot of indirect taxes ?

Quote:
Originally Posted by Simhi View Post
Interesting and debatable topic.
2 cents from my side. For government to collect more tax there are two options
Effective implementation will again remain a huge concern. We may have a lot of things on paper, but getting output which adds value to the nation building efforts remains a blank question.

IMO, the concern relating to taxes and its nature has to be discussed with Social, Political and Economical point of view. A strong leader with positive vision has to take a lead in complete reformation. The honest tax payer still remains the most tax paying individual and this has been for long. Its sort of criminal use of honest tax payers if govt. is not able to resolve the issue.

The curious case of taxes largely will not change in a nation like India. Which is why I pointed out Indians earning credits for doing good in BAE, NASA, etc. but not able to do good in India. Not following rules in India, but doing the same in USA, UK, Australia, etc. All these are pointers of social concerns we are facing. Why is it that Indians succeed in research sector more in foreign countries ? We need to look into our social structure here.
There can be similar concerns for political and even economical domains.
To end my post, my humble opinion would be to move to a more developed country where the governance is likely to be better and services justifying tax. As long as India churns out honest tax payers like us, nothing on this front is going to change in India.
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Old 15th September 2014, 16:24   #7
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Default Re: Reforming Finance in India

@V12Doc: I think there are gross errors in your calculations in the first post. A car which costs 5 lakhs is actually worth only about 1.5 lakhs. There is excise and octroi on the raw material, taxes on R&D, Royality and its tax, Exit tax, Entry tax, Vat, Octroi, Etc. So you have to earn 8 Lakhs for a car worth 1.5 lakhs.
@GTO: I don't think 30% tax is a lot. But I do think that paying Income tax and then a tax on everything that you consume is not acceptable. If you calculate in detail, you would realize that you pay about 80% of your gross income to the govt in various means. That is the biggest loss to the middle class salaried individual.
And it's not just luxury items like vehicles and pizzas, but also day to day items like food, building materials, etc. So we are taxed both ways. and at all levels of transaction. This is more like a broker functions than a govt.
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Old 15th September 2014, 16:49   #8
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Default Re: Reforming Finance in India

Income tax as a percentage of total tax collected is only 9% - see figure below.

Name:  TAX.jpg
Views: 165
Size:  12.7 KB

Source :
http://firstbiz.firstpost.com/econom...low-27316.html

Don't want to enter the discussion in detail, since I don't know much - but if Government reduces Income tax levels, govt will be forced to compensate in other areas and this may lead to inflationary conditions. Who wants that?

There are many countries that do not levy Income Tax - but if you see, these are the filthy rich countries where the even more filthy rich people set up home. The income is not taxed, but even for the air you breath you may have to pay in these countries
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