[V.Narayan]

Originally Posted by Sawyer

A question and an observation.
Does the 17% include all taxes including all indirect taxes collected by every tax collecting body in the country? Or is that just income tax? I don't know, hence the question.

This is total taxation indirect and direct. It pertained to the year 2015-16. A wee bit dated but directionally correct.

As to the sentiment of the salaried, I think it come from human nature which always decides how well one is doing not in absolute terms, but in comparison to others. So the comparison here is versus businessmen who are not in the TDS net and get away with legitimate and illegitimate ways of reducing their income tax burden. Regardless of how low the income tax rate may be for me, it is felt to be too much if the neighbour next door who has a business/profession pays less, and as a class, gets away with it.

No one likes paying tax. The salaried part of your income or the dividend part you cannot control TDS so the crib. There is no doubt that the business and self-employed community finds every route possible to avoid and evade tax.

So a related question, if I may: of all the income tax this is paid, how much is by corporates, how much is by salaried via TDS, and how much is by the rest of Indians put together?
"For assessment year 2016-17, 1.89 crore salaried individuals have filed their returns and have paid total tax of Rs.1.44 lakh crores which works out to average tax payment of Rs76,306/- per individual salaried taxpayer. As against this, 1.88 crores individual business taxpayers including professionals, who filed their returns for the same assessment year paid total tax of Rs48,000 crores which works out to an average tax payment of Rs 25,753/- per individual business taxpayer."

For 2017-18 very roughly about 55% of tax receipts are indirect taxes and 45% are corporation and personal & other income taxes. Within that 45%, 25% is from corporation tax and 20% from income taxes on individuals and other organizations. Your numbers are for 2016-17 but just extrapolating to get an approximation - using your numbers, above, about 15% of tax receipts come from the salaried person. And tax receipts are only a part of the total Govt receipts albeit the largest part.

[Sawyer]

Originally Posted by V.Narayan

For 2017-18 very roughly about 55% of tax receipts are indirect taxes and 45% are corporation and personal & other income taxes. Within that 45%, 25% is from corporation tax and 20% from income taxes on individuals and other organizations.

So by putting the above together with what the FM said in his speech, roughly half of all income tax is from corporations. And of the other half, as much as 75% is from just 19 million salaried Indians, while all businessmen+professionals, whatever their number but certainly significantly in excess of 19 million, contribute just 25% of it.

Or to restate as a percent of total income tax collected, 50% is from corporations, 37% from just 19 million salaried individuals employed by these corporations, and just 13% from a much higher population of businessmen/professionals - with the latter on an average arguably paying just about a tenth of the tax that their salaried counterparts pay per head.

This would suggest that the crib is as much from TDS, as it is from seeing many more people that live among them and around them getting away with not paying their fair share of income tax.

And there is the double whammy of seeing that what taxes they do pay, are not seen coming back to them as well built and reliable soft or hard infrastructure, or even where it does not come back to them but goes to the poor, knowing that even politicians admit that for every Rs 100 spent on support/poverty alleviation projects, only Rs 13 reaches the target population because of leakages. With other minor irritants about MPs and pay commissions voting ever higher salaries to these "servants" with no visible increase in their accountability, also in the mix.

And if 17% is total of all taxes to GDP, it is certainly low.

The question is - how is that to be increased? By even more sticks/stones? Via more direct taxes, to which although they may not be the targets, the salaried in the organised sector are the most vulnerable via TDS? Another demonetisation to bring business transactions that are hidden to light? GST? Or is it time to examine something more radical?

And in parallel, what needs to be done to ensure that the higher ensuing collections are spent in a much more accountable, transparent and responsible way?

I hope I will still be alive to see the day when this issue along with the other pressing issue of job creation in a way that the environment will sustain become the main subjects of a national dialogue instead of all else that dominates the various channels of dialogue today - that is the most I dare to hope for. Outcomes that follow will probably not come in my lifetime. The present young are the ones that need to drive the demand for this kind of dialogue to extract the desired outcomes from it.

Discussions about the annual budget on the other hand are popular, but a distraction from what should be the main event.

PS: I also suspect that even if it can be considered as one unified one, 19 million is small as national level vote banks go.

[DriverR]

As a salaried middle class person, i agree to a large extend to the points raised by Sawyer. Did I like this Budget? No, mainly as i did not see much benefit/relief for me. But I would not crib against the taxes I am paying. As a citizen of India, I am duty-bound to contribute toward the nation, and taxes is one important part. What I do crib about is the fact that a relatively small percentage of the people are contributing back to the nation via taxes. Every time I read news of corruption and money laundering, I feel betrayed. Why should the money i am paying from my hard work be lining the pockets of other people who may/may not be paying taxes. Even if i leave that aside, the basic fact that the govt cannot give sops/breaks to the income tax structure due to the small taxable base, should indicate that the tax base should be widened. How it needs to be done, i dont know. All I know is that as a law-abiding tax-paying citizen of India, frustration would creep in if there is only payment and more payment asked from us with not much visible/tangible improvement to the lives of us and our families.

[Sawyer]

Originally Posted by DriverR

What I do crib about is the fact that a relatively small percentage of the people are contributing back to the nation via taxes.

frustration would creep in if there is only payment and more payment asked from us with not much visible/tangible improvement to the lives of us and our families.

Two excellent points.

As a salaryman for many years, I felt exactly the same as you do, without good data to back up my grudge. To be honest, even I had no idea till yesterday, when I was able to pull together the hard data that I have presented, about how much the data supports this grudge. I am shocked to myself realise that leaving aside corporations that aren't people as such, just 19 million salaried people in a country of 1400 million pay 75% of the income tax that the government collects from citizens. Working backwards using crude approximations from this population size of 1400 million, 19 million, out of a total number in excess of 200 million that must be having income that is taxable, are paying this 75%; the remaining 90% together are paying just about 25% of the income tax paid by all individuals. Very rough calculation, but anything more accurate isn't going to drastically change this picture of blatant inequity.

Your situation looks more grim if you take political realities in the country into account. With the 19 million salaried fragmented as they are, as a vote bank in the elections to parliament, every political party can safely ignore this class, and - no surprises there - they have always done so. All that is done is paying lip service, as to a milk cow.

Which is why my advice to the young would be to look for every possible opportunity to start their own business or profession and escape the jail that is TDS on salaries. As one automotive example, think of luxury car ownership, and how much easier it is to afford to buy one if it can be kept on the books of a business, as compared to buying one on a salary. And this, using only legitimate means of expensing out the costs in the calculation of taxable income.

[JayKis]

Originally Posted by V.Narayan

First let's look at facts *. Amongst the 20 largest economies in the world India has the third lowest tax to GDP ratio. Ours is at 17%. Of the other BRICS it is China & Russia at 20%, Mexico at 24%, South Africa 27% and Brazil at 34%. From amongst other 20 largest economies - South Korea is at 33%, Turkey 25%, Spain 37% and so on. Of the 20 largerst economies only Indonesia at 12% and Saudi Arabia at 5% are lower. I am not making a comparison with advanced economies here as their governments give a lot back to the people but out of interest it is USA (26%), UK (34%), Australia (34%), Germany (44%) and France (48%). Before we further grumble about being taxed to death lets compare ourselves with other countries in roughly the same per capita income range (by purchasing power parity) as us - Uzbekistan (21%), Boliva (27%), Guyana (31%) and so on. This is the challenge the Govt in India faces - that our tax base and collection/GDP ratio is too low for the Govt to be a meaningful instrument of change through monetary spends . That may not be a bad thing given that our Govt has yet to learn how to spend money efficiently. Therefore as Sawyer rightly points out the big executive actions (GST, interest rates, keeping the INR stable) are outside the budget and rightfully so.

So while we crib and moan of no sops to the middle class and the salaried are taxed to death let's once again look at hard data. Some posts speak of half our income going in taxes. I do not know where that figure comes from when the top tax slab is in the low thirties. A tax payer who pays income tax in 8 figures (ie above a crore of rupees) won't get to a tax equal to 1/3rd of his income. We tend to view the budget as - if it has lowered my taxes then it is good and not otherwise. The fiscal implications are far far wider than that. It isn't as if the FM or the Revenue Secretary wake up in the morning and rub their hands in glee and say now let me see how I can squeeze the salaried employee. By bringing in LTCG, which in my opinion was overdue, they have avoided more painful tax raises like the basic income tax rates/slabs. I say this despite the fact that in 2018 when I sell my business (which I am doing) I will be hit by this LTCG but for the nation it is the right step. Once again let's look at the facts in other countries and see where our LTCG of 10% stands. LTCG rates: in USA - 20% for most tax payers; Australia 19% to 45%; UK 20% for those above the lowest income slab; Germany 25%; Brazil 15% to 22.5%**. Our 10% compares very favourably.

[/i]

This has to be written in Gold. This is something which we tend to overlook every time.

Having worked in 6 countries across the globe, the lowest tax rates I have experienced is India and Singapore with paying 50% in Belgium the highest!:

We would really be surprised as to how much we pay as income tax. Given below is an illustration of two salaried individuals at 10L and 20L annual salary (staying in a no-metro) and how much the tax has come down over the last 4 years. The effective tax rate is 1% for 10L and 10% for 20L!!

[FrozeninTime]

Originally Posted by JayKis

This has to be written in Gold.

Its like comparing apples to oranges. The Countries you are referring to have World Class Infrastructure , universal healthcare payed by Government and unemployment benefits. Most of Budget money goes into buying fancy cars for our Lutyens officials, paying for Judges holidays , Salary for Government officials and other mindless spending such as buying electric cars for Government officials. At end of the day I get zero benefits so why shouldn't I crib about it?

I would be happy if our Government spends money on satisfying requirement of Armed Forces. Instead I see year after year Armed Forces are shortchanged whereas Politicians get automatic Salary raise.

[Sawyer]

The words "Paradigm Shift" come to mind, though these are now often used very casually for superficial changes.

Here is one paradigm, that no one even realises these days, we are that used to it. If politics is public service, and politicians are servants - or to use the more popular word these days, sevaks - why are there over the top celebrations by the winner of every election in the country, with zero exceptions? Both by the winner who flashes victory signs vigorously and his followers who garland him profusely, distribute sweets, and re enact a Diwali with fire crackers. What exactly are they celebrating - being elected to being a servant?! Does no one see the blatant hypocrisy on show when they then claim to be sevaks? The shift of the paradigm from being as powerful a ruler as any rajah and maharajah in the past to being a genuine sevak will be easy to test in just the reactions to the result of an election. Doing things like removing beacons from cars is just superficial lip service; it does not fool anybody. Actually, our leaders have it even better than maharajas - when the latter were overthrown, they never got continuing Z category security or life long pensions. The lucky ones escaped with their lives.

Related to this is why there is little hope for anything to change in India except at the speed of evolutionary change. Fixing India will take a slew of radical measures whose results will not happen in a visible way over the term of elected office and in many cases, things may even first get worse before the turnaround. With getting re-elected the prime motivator of every politician in the land, how can any relevant paradigm ever shift? Where is the motive for driving the shift?

Even if elections are held as widely forecasted now by end 2018, regardless of the outcome, expect therefore the same ice cream in the budget that follows them.

As the Americans say pithily - SSDD. Same *&^%, Different Day.

[blackwasp]

Originally Posted by V.Narayan

Forgive me for stating this but at times our discussions on economics/finance/government get waylaid by rhetoric, a systemic fear of everything to do with the government and I dare say, at times, a very narrow perspective. My thanks to writers like blackwasp, GTO and embee for spelling out the facts without emotion.

Thanks for a very enlightening post sir. But let me add a bit of emotion here.

The main grouse of the tax system, for me, is the lack of transparency and any visible changes. Its like modding your car to get a sub 10-second time, but despite pouring lakhs on the mods, you still see no improvement, on the other hand the reliability of the car has gone down. Its not like you are not willing to put in any money on the car, but just that it hasn't worked out.

I had great faith in GST, but then, provided there would be relief on the income tax. A salaried person ends up paying double tax (Not cribbing here, just an observation) - just like the road tax we pay on ex-showroom. Technically, the road tax amount should be collected on the ex-factory price.

[Thermodynamics]

Long term capital gain tax is worse than it looks

It appears as 10% but in reality one may end up losing 30 or 40%

You might resent this tax, or you may console yourself that it's at least a lot less than the 30 per cent income tax slab you are on. If that's what you think, you may be getting ahead of yourself. This tax could cost you a lot more than 10 per cent. Even though the government will get 10 per cent of your returns, you could actually lose 30 or 40 per cent or even more of your returns, depending on how you invest.

No equity investor is going to hold the exact same investments for very long periods. At some point, they would sell some of their holdings and buy something else. Given the structure of tax laws, capital gains would be taxed on each such switch, leading to less capital being available for compounding subsequently. The eventual impact would be quite large, but would differ for each investor depending on their buying and selling pattern.

Mr Jaitley has made this tax deeply unfair by not allowing inflation indexation. Inflation indexation is allowed for every other form of long-term capital gains in India--bonds, real estate, unlisted equity to name just a few. It is a cornerstone of fair taxation that the government cannot ask you to pay a tax on values that increase because of inflation. Why is this principle being ignored for this tax? There is no justifiable reason.

Value research online

[Sawyer]

Originally Posted by blackwasp

like the road tax we pay on ex-showroom. Technically, the road tax amount should be collected on the ex-factory price.

It does not matter if you are right or wrong with the above, and here is why:even if you are correct, and the amount should be collected on a lower price, the collecting body will simply increase the rate percentage to be applied, leaving you in the same place financially. Because to the collecting body what is taken in their budget is the amount they expect to collect in the aggregate under different heads, and they cannot afford to let that come down merely because the base for applying the existing rate has been reduced for whatever reason.

This is similar to what the FM said today about reducing the corporate tax rate from 30% to 25%: he said he will do it once the exemptions in place today expire. He claims that this is what he said in 2015 as well, and if so, credit to him for consistency. But at both times, this is just playing around with numbers leaving corporates in the aggregate in the same place with respect to the total after tax income available in that sector to drive growth.

Similarly, if the salaried are not to pay the tax they do just now, double or whatever, something else has to make up for it. Or the deficit has to increase.

[saurabh2711]

The Countries ....have World Class Infrastructure , universal healthcare payed by Government and unemployment benefits..

I guess the government has shown some intent towards it. I am in no condition to comment on its implementation, but intent is in place. Why in the last year of full budget, I don't know.

Absolutely no offence meant to anyone who raised question on infrastructure, just wanted to quote someone who addressed infrastructure, hence the quoted post.

When we talk about world class infrastructure, the following pick is from a washroom of an office of a world class Software company in Pune; washroom is more than 99.9% used by so called educated class who are responsible for a significant share of the taxes that Government collects. This is the same group (not all) which crib for not having access to world class infrastructure even after promptly paying taxes.

In the Pic the notice requests the user not to spit Gutkha or Chewing gum in the urinal. What my educated tax paying colleague did : stuck the remaining unwanted, leftover chewing gum on to the casing. He did not even have moral education throw this leftover, in a dust bin hardly 6-10 feet away. Even after notice planted right in front of the face, seeing Gutkha & Chewing gum in the urinal is a daily sight & probably after every cleaning that takes place at an interval of 2-3 Hours.

Do we really thinks such class deserves a World class infrastructure? this is not applicable to all.

We have probably compromised how any government handles us & have a belief that situation will not improve & have to live away with it.
Had this not been the case, De-mon Drive would have been a super hit (almost everyone found a way to earn even during this) & so would have been the awareness drive for clean India. India is famous to find loop-holes in every policy or rules well before it is implemented.

We will probably have to earn it, as few of us don't deserve it. Hence others suffer.

[Altocumulus]

Originally Posted by JayKis

This has to be written in Gold. This is something which we tend to overlook every time.

Having worked in 6 countries across the globe, the lowest tax rates I have experienced is India and Singapore with paying 50% in Belgium the highest!:

We would really be surprised as to how much we pay as income tax. Given below is an illustration of two salaried individuals at 10L and 20L annual salary (staying in a no-metro) and how much the tax has come down over the last 4 years. The effective tax rate is 1% for 10L and 10% for 20L!!

Attachment 1724839

Interesting Calculations, however some observations on the 20L salary.

1. For HRA exemption of that amount the person needs to rent a place for 40k per month at least (since you would need to deduct 10% of basic for HRA exemption). Hardly anyone having a 20L salary would do that.
2. You have shown Home Loan Interest as well. That means a person needs to buy a house in a different city to get that benefit else he wont. Also that would require a loan of 25-28L to take that benefit of 2L for the initial years.
3. For other areas also he needs to invest the money, like NPS, Remaining 80C etc.

So at the end a person earning 20L, which I am sure you would agree is quite a lot in India, a person will be left with less than 60k in hand as disposable income. Add to this the amount for daily expenses, investments, etc. 20L doesn't seem that much then. I won't even go into the taxes imposed on them as well.

The issue is not paying taxes. It's the return on them. I pay taxes to get service, service from the government. Do I get it, is the question. It's like Maruti doing a horrible service or no service and giving you back your car. When you complain, someone in a BMW tells you, "Oh come on, they have the lowest service cost, why are you cribbing? '

I don't understand why certain professions should be given exemptions. If they are earning they pay tax. If they are not doing well they will anyway be under the minimum threshold. Just because the politicians want to woo the larger chunk, we salaried taxpaying folks have to pay the brunt of it, since anyways we are the minorities at less than 3%.

So don't think that the salaried folks are trying to jump on the free bus. It's just that it hurts seeing our hard earned money literally now going down the drain of 8 crore toilets.

[Dry Ice]

Just a random hypothetical (impossible.. add more adjectives) thought, what if all tax paying citizens take a month's leave without pay? Will it make a difference enough for the Govt to seriously think about widening the tax base?

[ashokrajagopal]

Originally Posted by Dry Ice

Just a random hypothetical (impossible.. add more adjectives) thought, what if all tax paying citizens take a month's leave without pay? Will it make a difference enough for the Govt to seriously think about widening the tax base?

Well then, most of them wouldnt have to get back to work at all. Most probably.
That kind of stuff would shut down the economic activity to a stand still.

[ritz3645]

There are two different set of salaried taxpayers.
One is pvt sector and the other are State and Center government employees. From my experience the HR at Pvt companies leave no stone unturned to avoid taxation to their employees. Heck the HR maze to avoid PF is a starting stone for any Pvt companies employees. So State and Center government employees do also form a huge chunk of direct tax base.