[greenhorn]

Originally Posted by Sawyer

I will make it easier for you by stipulating that we don't - as a group - pay all the taxes that are due. Bitter truth or not, I am not arguing that this statement is false.

Using the 5 why approach, what is the root cause of this?

I'll bite - note that the causes are all my hypotheses, your guess is as good as mine, and are not really defendeable

Low tax compliance in my opinion is driven by 2 causes

1 - High tax rates - 1.1 caused by low compliance (sort of a chicken and egg situation)
->also caused by 1.2 need to generate revenues to fund govt expenditure to achieve wildly optimistic poll promises and sustain an inefficient beareaucracy
-> 1.2.1 wildly optimistic poll promises -> they need to get elected
->1.2.2 inefficient bureaucracy -> there is no accountability or performance culture in govt -> I think that is already being discussed here
2-> High effort needed for compliance - to be a compliant business, there are a maze of national, state and regional laws, often conflicting with each other -> each legislative body comes up with new taxes and rules, and dumps it on the public without any thought of how it can be implemented, and the babus, preying on the uncertainity and the headache that this creates, use it to milk businesses for bribes (anyone who has dealt with a corrupt RTO understands what I'm trying to say) -> It's all politics between the state, centre & regional bodies ( see the karnataka road tax issue) with each of them trying to get more money (see 1)

[Sawyer]

Good effort, but what I am not seeing in this is the root cause: accepting that Indians are generally not honest about paying taxes due, based on your Q&A, what is the root cause you arrive at? One or more, but if more they should be at the same level of being root or prime causes.
PS: One point though, one of your answers is circular and should be eliminated because it stalls progress to a root cause. Personally, I don't think rates now are overtly high, but conceding that:
1. We don't pay taxes because the rates are too high
2. Rates are too high because all of us don't pay taxes
So only for that reason of wanting to move forward, I suggest we leave high rates out of the answers and see where it takes us. If you have any other reason that isn't circular as to why the rates are too high, that can of course be used to proceed.

[drsingh]

Originally Posted by Sawyer

Good effort, but what I am not seeing in this is the root cause: accepting that Indians are generally not honest about paying taxes due, based on your Q&A, what is the root cause you arrive at? One or more, but if more they should be at the same level of being root or prime causes.
PS: One point though, one of your answers is circular and should be eliminated because it stalls progress to a root cause. Personally, I don't think rates now are overtly high, but conceding that:
1. We don't pay taxes because the rates are too high
2. Rates are too high because all of us don't pay taxes
So only for that reason of wanting to move forward, I suggest we leave high rates out of the answers and see where it takes us. If you have any other reason that isn't circular as to why the rates are too high, that can of course be used to proceed.

Root cause is simple from the economics point of view.The goods/services provided are not worth the price. Govt. services i . e . Healthcare,education,security, protection of private property,law and order, protection of liberty are not worth the cost to its target clientele.This target clientele chooses to pay the private sector for the same services .Cash is necessary in India to grease the petty wheels of corruption/ regulation/ rent seeking by the Bureaucracy and Politicians . This cash has to be borne by businesses as cost of doing business.Hence it has to be off the books= Black money i .e .money on which taxes have been evaded.

Economic analysis is a value free science i . e . study of human behaviour from an incentive s point of view.Humans act according to the incentives they have on the road to achieving their ends using whatever means available to them.

So if you leave morality out of your questions,the answers will present themselves . Clear as day.

[greenhorn]

Originally Posted by Sawyer

Good effort, but what I am not seeing in this is the root cause: accepting that Indians are generally not honest about paying taxes due,

To me it looks like you have already subscribed to the PM's hypothesis that indians are not honest about paying taxes, and looking for an RCA that leads there.
I don't accept the premise that indians are not honest about paying taxes due - if that is so, why do we not see the same trend among NRI's ?

[Piyadassi]

Originally Posted by Sawyer

Any guesses as to the root cause for this bitter truth about India and Indians?

The person who actually has to give us the answer is asking us the question.

Anyways, let me hazard a guess and it is that we don't trust our governments.

Originally Posted by aaggoswami

Just to cite an example, correct me if I am wrong here, is Air India. Government poured in money, and what is ROI

Recently I had read a well argued article where the writer had established how Air India's is a much bigger scam than the Kingfisher's. And nobody is bothered.

[SilentEngine]

Originally Posted by Sawyer

I will make it easier for you by stipulating that we don't - as a group - pay all the taxes that are due. Bitter truth or not, I am not arguing that this statement is false.

Using the 5 why approach, what is the root cause of this?

There may not be just "one" root cause. There are far too many factors at play here.

1. General perception that one doesn't get returns on the tax paid (in terms of better infrastructure, better social security etc) or that the tax is being misused.
2. Large social divide between the haves and have nots. Most people think that by being honest they will simply not be able to move up the ladder. This is not to say that the haves are all honest.
3. General apathy towards dealing with government or government bodies, so one may find it convenient to stay off the chart. Also it doesn't help that, most government bodies don't have a reputation of being people friendly.
4. Large population fighting for few resources - which automatically makes everyone competitive and people are not afraid to break the law for short term gains, which is deeply engrained in our the system over a period time.

Originally Posted by greenhorn

I don't accept the premise that indians are not honest about paying taxes due - if that is so, why do we not see the same trend among NRI's ?

NRIs paying taxes in India or their country of residence?

[greenhorn]

Originally Posted by SilentEngine

NRIs paying taxes in India or their country of residence?

Country of residence.

[SilentEngine]

Originally Posted by greenhorn

Country of residence.

Most of the NRIs would be in developed countries or countries where the laws are stricter. Also factor in that NRIs are typically people who went away seeking greener pastures, and with first hand experience of the benefits.

[Sawyer]

Originally Posted by greenhorn

To me it looks like you have already subscribed to the PM's hypothesis that indians are not honest about paying taxes, and looking for an RCA that leads there.

I have not accepted it in any recent post here; all I accepted is the PM premise that Indians don't pay all the taxes due. The answer to the first why to that premise may well be that Indians in India are not honest but what happens when you ask the second why to that statement? Why are Indians in India not honest?

Is it something in our DNA? Are we all just dishonest? Or is it something else? For instance:

Originally Posted by Durango Dude

It's not like Indians don't like to pay taxes: we hate to see our tax money get wasted by ex-ministers and ministers who go on medical tourism abroad at state expense.

Originally Posted by aaggoswami

Tax payers deserve respect, services and there has to be certain amount of accountability on government's part.
Till there is increased level of accountability from government, there would be crowd avoiding tax.
A visit to most government offices is more than enough for most tax payers to feel where their hard earned money goes and what is level or service being provided.
To sum it, expenditure of tax payers money is not reasonable in my view.

Originally Posted by drmohitg

As a Tax payer you need to pay high premiums and still not be able to afford the best of the treatment available. But as a government employee and hence a CGHS beneficiary, you are entitled to all these services free of cost

Originally Posted by greenhorn

->1.2.2 inefficient bureaucracy -> there is no accountability or performance culture in govt
2-> High effort needed for compliance

Originally Posted by drsingh

The goods/services provided are not worth the price. Govt. services i . e . Healthcare,education,security, protection of private property,law and order, protection of liberty are not worth the cost to its target clientele.
.Cash is necessary in India to grease the petty wheels of corruption/ regulation/ rent seeking by the Bureaucracy and Politicians .

Originally Posted by Piyadassi

Anyways, let me hazard a guess and it is that we don't trust our governments.

Originally Posted by SilentEngine

General perception that one doesn't get returns on the tax paid (in terms of better infrastructure, better social security etc) or that the tax is being misused.

Many of these surface at just the second why as obvious answers to the question - Why are we Indians dishonest in paying our taxes in India?

What I find objectionable is that very conveniently the Government has stopped the root cause analysis at the answer to the first question without going to the second why, whose answers are so obvious to all of us - let alone the further why questions that need addressing.

It is a cruel irony that those that are an influential part of the cause of our dishonesty are lecturing us that we are dishonest and using the weight and power of the state to use a stick on us. And some of these worthy people are a part of corruption cases and scandals in the administration of sports bodies while others are - get this - bureaucrats.

Not once since the demonetisation announcement have I seen any discussion in any depth anywhere by anyone in authority on any root cause analysis being done about this "bitter truth". And none about what steps are being taken to address the answer to the second why question and drilling down further into more layers of this complex onion. Who is addressing the reasons for our dishonesty? Or is it enough to just add more sticks and tricks to the arsenal of the State to punish it in us?

Since I pay all my taxes - out of compulsion, I agree - I would happy to see everyone do so because then, hopefully, the rates would come down and with it, my tax bill. But isn't that besides the point?

[m8002?]

Originally Posted by greenhorn

Country of residence.

Me feels, its only because they cannot get away with it easily in their country of residence.
We have enough people with H4 visas who work illegally in the US.

[navin]

Originally Posted by aaggoswami

The statement from PM, "But, how is it possible that India had just 32 lakh taxpayers who declared ... abroad last year alone.

Just to cite an example, correct me if I am wrong here, is Air India.

To me, demonetization has failed; it wasn't future proof and digital India is a distant dream too.

All valid points.

1. Remember that just because a Prime Minster quotes some numbers it may not be a fact. Politicians are not known to be factually correct very often. For example about 1/3 of those "8 lakh doctors" are only educated only to secondary school level
Source: http://www.who.int/hrh/resources/160...orce_India.pdf

The story is not a lot different with the "engineers". Only a small percentage are actually employable.

2. While Air India is an extreme case of mismanagement and corruption almost all (if not all) PSUs are more employment agencies than anything else. SBI, NTPC, SAIL, etc. are all very overemployed.

3. I appreciate the pain on demonetization. For a short while we expected India to take a step towards cashless but that seems to have petered out. I don't see any change in corruption or terrorism numbers but I don't have any data to back up my "opinion". All I can say is at least "Modi and company" tried to shake the system; which is more than I can say for pervious administrations.

Originally Posted by Sawyer

Not because the people there are different than us, all are Indians like us; but there just isn't the motivation and therefore the need to do better with job security and pay increases guaranteed for all.

I don't think anyone is going to challenge this.

Originally Posted by Samurai

Actually, No. GST is not fully understood, so people are making assumption that they can selectively stay outside the system. Unfortunately, that is not the case.

GST system is designed to discourage dealing with unregistered B2B partners. It makes you responsible if your vendor/buyer is not registered under GST.

I still don't fully understand the system, but this is the gist I have so far.

Samurai, you have got a pretty good handle on GST (or at least the "gist" of it). There will still be some challenges. Some 'companies' are willing to take the '18% hit' and not register.

As long as ALL states stick to the 5 tax slabs (0%/5%/12%/18%/28%) and do not start executing "compensation tax", the GST regime (CGST/SGST/UTST/IGST) should streamline business processes. Lets pray that the states don't break ranks.

There are some smaller challenges left but I think these will be worked out over time. For example some traders have complained that there is no provision to take credit for goods purchased more than 12 months ago, in some cases the mechanism to take credit is not clear, etc.

Surely many CAs feel that they have not been given enough time to prepare, that not every detail is clear, and all the processes and mechanisms are not in place, but instead of fearing the worst, we should give credit to this administration for having the courage to go ahead.

[Sawyer]

On GST, I haven't understood how it is different from VAT/service tax in terms of ensuring compliance; is there something in GST v VAT/service tax administration that enforces better compliance?

And reading about how GST will be a big bonanza for the consulting industry leaves me again dreaming about the banking transaction tax that would eliminate the need for both income tax and GST and be ridiculously simple to implement. Too much to wish for, I suppose. Not enough complications there for all the vested interests to exploit.

[sushantr5]

As I understand GST, as a business you are responsible for giving account of material you have sold.

Lets say, if you buy 10 pens from wholesale market with proper bill. Your business deals with selling of these pens to retail or wholesale market.

Now you have to produce sales bill for 10 pens to Government. If not then you have to show unsold inventory. If you are selling 10 pens to another business (B2B) then you have report details of buyer party.

Government has a track that you have purchased 10 pens. If you do not show proper accounting of stock and sales then you will be tracked.

so basically GST is top down approach.

Earlier vat system was bottom up approach. In earlier case, you have to show that from where you have purchased 10 pens and to whom you have sold pens. Now you could have completely shown that I did not purchase any pen and I did not sell any pen so eventually you could have evaded complete VAT and hence Income tax.

In GST regime it is difficult. As your purchase is reported by business in the chain above. So you have responsibility to show proper accounting. In GST you have upload monthly sales report and these reports can not be adjusted in future.

This is how GST will increase Tax compliance. Initial few years will be needed to make people fall to compliance. State of the Art infrastructure is needed to track transactions and I think Government already has all things in place.

Now 'Kachcha Bill' businesses will be difficult to perform. Because for the tax evasion, all the nodes in the chain, right from manufacturer to retailer has to be part of evasion, which will be difficult. And Manufacture is also purchasing raw material, he is sourcing parts from vendors. So to make it profitable he has to minimise his tax burden by adjusting against GST he already paid. So he will definitely demand all white transactions and he has to do all sales transactions in white to get out of trouble.

So with the period overall tax compliance will grow. Tax rates will decrease and Country as whole will get benefited.

And as per my observation, you initially feel that you will need consulting services to upload sales report. But I think with the time you will not need consultations, you will have minimal need of accounting software in future. There will be Digitization where sales terminal will directly upload sales report to GST framework.

[navin]

Originally Posted by Sawyer

On GST, I haven't understood how it is different from VAT/service tax in terms of ensuring compliance; is there something in GST v VAT/service tax administration that enforces better compliance?

Samurai said it best so I am using his quote below.

Originally Posted by Samurai

GST system is designed to discourage dealing with unregistered B2B partners. It makes you responsible if your vendor/buyer is not registered under GST. So every legit business will avoid buying from unregistered vendor. Since you have to mention the GST number against every transaction, there is no escape. As a buyer if you don't produce your GST number, you end up paying the tax like an end user.

Now I have to ask everyone of my vendors to produce their GST number. If they don't have GST number, I'll have to pay their GST tax. Who wants that? So every company will avoid dealing with unregistered vendors of goods and services.

This might be the most effective part of the GST system. Although I do not leave it above the Indian businessman to find a loophole around this too.

The challenge I see right now is that the vendor and customer must load their corresponding data "error free" on the FIRST instance in the same month of the transaction. There is no room for corrections to be added later. If there is a mismatch the customer cannot claim GST. This requires even small traders and merchants to be reasonably tech savvy and have consistent internet connections (across much of India).

So, for example, if you ordered 12 mobiles from a vendor and he delivered only 10 you cannot adjust the balance 2 in the next bill. Now this is a rather simple example but much of "Little India" (aka smaller traders and merchants) operate from the space of "agle bill main adjust kar dhenge" (we will adjust in the next bill). This wont be possible with GST.

If you want to avoid tax you have to surrender the GST credit. In effect it "taxes" (or penalizes) those avoiding taxes by the GST rate (5%/12%/18%/28%) applicable to them.

[Sawyer]

If my memory serves me well, even before VAT, years ago in the days of good old sales tax, one had to pay purchase tax on purchases from unregistered dealers. Assuming one was a registered dealer under sales tax of course, as every limited company is, as far as I know. No company therefore had dealings with unregistered vendors, unless there just wasn't any to be found for the goods in question, which was rare. This therefore isn't new, as far as I can see.
From all I have read, GST is about simplification, reducing the number of different taxes and rates, reducing the need for check posts that slow down goods movement, allowing for more efficient supply chains by allowing warehouses at a country level as opposed to one for every state served. I haven't been able to figure out how compliance will improve compared to the VAT/service tax that it has replaced.