[Sutripta]

Originally Posted by Thad E Ginathom

I guess this immediately gets political

TEG, did you take part in the street protests against Thatcher's poll tax proposal?

Sutripta

[apache_aayush]

Working in the banking sector , i know many who own Mercs and BMWs but their Income Tax Returns are as much as I file. Thats tax evasion for you in simple words

[V.Narayan]

How many pay income tax should be measured by household not individual. But our journalists and some segments of the bureaucracy don't get that or choose not to so the lament endures - only 1% pay income tax after 73 years! I am not for a moment saying that our income tax base should not be improved and we all know there is significant scope for it but we need to break out of this whine based on the wrong measuring tape.

First it is incorrect to say only 1% Indians pay tax. All Indians who buy goods or services end up paying tax - indirect tax. So let's, we the upper classes, first stop feeling so martyred. The one's who ought to feel martyred are the one's paying 42% odd tax on their whole income.

There are 24.9 crore households in India as per the 2011 census. Let's assume most have one or maybe two bread winners. Of those 24.9 crore about 5 crore file taxes and 1.46 crore declare an income above Rs 5 lakhs. The correct denominator for measuring penetration is 1.46/24.9 to get a more realistic picture of how much more penetration we will get to - certainly more than a days work here - the point I'm making is that the pool to scavenge from is 24.9 crores not 138 crores. In a family of 5 with one breadwinner when you levy income tax on the breadwinner you are effectively levying it on all the 5 members. The correct statement is "20% of Indian households file returns. Of which 5% admit to a taxable income". I am in favour of the Govt policy to scan the flanks - car purchases, big hotel bills, foreign travel etc to triangulate if some charlie ought to be declaring a higher income.

In my earlier post number #11 { https://www.team-bhp.com/forum/shift...ows-proof.html (Only 1% of India pays income tax, govt shows proof) } I'd indicated that those earning above Rs 5 lakhs a year is probably 3.3 crores. Let's assume we are off by 100%. We are still at only 6.6 crores-- that is our pool of potential income tax payers and not 138 crores. The Government, the media and we the audience need to stop the chant of only 1% otherwise we will continue to face policies of tax rates of 42% , DeMo, and the basket of harassing existing tax payers et al.

Last week I received some certificate from the IT Dept about being a good tax payer. Recognition at last after 38 years <sniff> This week came a letter enquiring about a certain line item of income of literally - don't fall off the chair - Assessment Year 2005-06!!?!! This lopsided conduct arises from this lingering attitude - only 1% pay tax, go get the rascals. I take solace from the fact that I have lesser years of paying income tax ahead and more years behind me.

[RoadMonkey]

As someone with an Economics and Accounting background, I can shed some further light in addition to what's already been said.

@V.Narayan Makes an excellent point. India's large population makes the small % of rich people seem more than they are because of the large numbers. India, by and large, is still very poor and most of the people earn <5L p.a. 53% of India's population works in the agricultural sector - income which cannot be taxed altogether.

Tax compliance in any society is based on a system of trust. If the people trust their goverenment with said money, and trust it to put it to a productive use, they are more willing to comply with the tax system. Our govt's attitude is one that of an insecure or a paranoid one, there's a lack of trust all round. This gives rise to poor attitudes. We also have some bad history.

During Indira Gandhi's prime, the tax on the top tax bracket was as high as 98.5%! Either you just don't try hard to earn or you obviously hide your money for evasion, there was no other way. India govt's history wrt taxation is extremely poor and that's given rise to the culture of non compliance.

Some people have suggested replacing income tax with GST or an indirect tax - the simple reason for not doing that is that indirect taxation is regressive and affects the poor disproportionately compared to their incomes. Income tax is the more progressive option.

As for the reasons for low no. of returns, only people working in the organised/salaried sector file tax returns, not because they want to but because they have to.

Take, eg, even if you're a legit businessman, you have 4 adult family members, you're going to distribute your income among all of them to reduce your tax burden, and why shouldn't you? A salaried employee cannot do that.

[hondafanboy]

Originally Posted by V.Narayan

In a family of 5 with one breadwinner when you levy income tax on the breadwinner you are effectively levying it on all the 5 members.

This is an interesting point and makes sense. I never thought this way before. All these years, I used to think that only I pay the taxes. And yes 42% tax is unfair.

[wildsdi5530]

Originally Posted by RoadMonkey

Some people have suggested replacing income tax with GST or an indirect tax - the simple reason for not doing that is that indirect taxation is regressive and affects the poor disproportionately compared to their incomes. Income tax is the more progressive option.

Actually this statement is flawed. The poor will consume much less than the rich. Their spending patterns will be different. All figures used in the examples are for representative purpose only.
Say a biryani costing Rs. 150/- will incur taxes of Rs. 7.50/-, but a dal-chawal costing Rs. 20/- will incur only Re. 1/- (if GST was 5%).
A china Phone costing Rs.5000/- will incur GST of Rs. 900/- But an iPhone costing Rs. 1,00,000/- will get a tax of Rs. 18,000/-
So indirect taxation will tax your spending and not your earning. A poor man may want to buy an iPhone but a rich man may be happy with a china phone. But that does not mean that the rich man must pay more tax to own a china phone and eat dal-chawal and the poor man should get the Biryani and iPhone with lower taxes.
The middle path followed by successive govts trying to appease everyone is what leads to confusion and hiding income. Either you decide to tax the rich crazy, or you equalize the taxes. No point in trying to make the 10% bracket poorer than the nil IT bracket or 20% poorer than the 10%, and so on.
Say I earn 4.99 Lakhs but spend only 1 lakh, paying Rs. 5000/- as GST (assuming median GST of 5%), but you earn 5.01 lakhs but spend 4 lakhs, paying 20,000 as GST, why should you pay an additional income tax?

Originally Posted by V.Narayan

The one's who ought to feel martyred are the one's paying 42% odd tax on their whole income.

Where does the 42% Tax come from? I was under the impression that pre GST era 92% of your earnings ended up in the Govt's pocket

[RoadMonkey]

Originally Posted by wildsdi5530

Actually this statement is flawed.

You don't calculate tax paid purely in terms of total tax paid but also percentage of tax paid. Even then, 10% of his income for someone earning 5 lacs p.a. is more in terms of utility value than the 20% for someone earning in the bracket of 5-10Lp.a. as our existing slab system is, and so on. It's a little concept called "marginal utility of money".

A person consuming less as a necessity due to low income does not make the indirect tax not regressive. What I said isn't an arguable or a debatable statement. Food is essential, nobody can live without food. Believe it or not, life without iPhone is possible.

[digitalnirvana]

There is no panacea but I struggle to understand why agriculturists are exempt from taxation. This loophole alone, if plugged, will fix so many things -
1. The unholy nexus of the land mafia & politicians.. Err * agriculturists *
2. The ever inflating bubble in land prices which has led to unaffordable real estate
3. The stronghold of a few political families over the crop production, storage and distribution of their states

Surely surely the government knows that a contract farmer is not the same as someone who has hundreds or thousands of of acres of farm land? What is all the Machine Learning on Big Data Lakes doing?

No one can touch the * farmers * so my rant is moot anyway.

[Gaur]

Originally Posted by Thad E Ginathom

But the main reason that I detest indirect taxation is not because of the hefty amount that it adds to our spending on what might be called luxury items, from flights, through cameras etc, to vehicles, but because it means that if a person with one tenth the income that I have, and I, both buy the same thing, we both pay the same tax. That is not fair and it is not proportional. And the poorer a person is, the harder that hits.

Another argument i have heard against indirect taxation is that it may have a negative effect on in-discretionary/free spending by people.

People might reduce consumption to avoid taxation and this in turn can have an -ve effect on the growth.

[RoadMonkey]

Originally Posted by digitalnirvana

There is no panacea but I struggle to understand why agriculturists are exempt from taxation. This loophole alone, if plugged, will fix so many things

I'd like to quote a line from my textbook.

"Section. 10(1) of the Income Tax Act exempts agricultural income from tax as our Constitution does not provide power to the Parliament to levy tax on agro-income."

Agro income is used in the total income for the assessment of tax slabs. But there will not come a day in our lifetimes when agricultural income will be taxes. It's politically impossible. Slightest change in legislature leads to protests (you can check the current situation Punjab). Not to mention, a lot of MLAs and MPs come from agricultural/landlord background.

[Ranabegins]

Let me state one fact very clearly here, people do steal taxes and a majority of people do that. I know Doctors, teachers, shopkeepers who earn in Lakhs per month but haven't paid a single dime or next to none in taxes. I have seen people who own multiple cars but still haven't ever paid taxes. The mistake is not only of those people but also of the government as the government hasn't set up a system to catch these kind of people. The government needs to catch these kind of people in big number and make an example out of them.

[bj96]

Originally Posted by V.Narayan

...

There are 24.9 crore households in India as per the 2011 census. Let's assume most have one or maybe two bread winners. Of those 24.9 crore about 5 crore file taxes and 1.46 crore declare an income above Rs 5 lakhs. ...

Excellent argument but slightly flawed. All household members use resources (infrastructure, electricity, water, health care whatever rudimentary it is, primary education etc) which has social and economic cost. So all ought to pay income taxes. We should encourage every member of a household to stand up, step out, and earn money and contribute to the tax pool.

Having said that, there is a concept of "Hindu Undivided Family" (HUF) or similar thingy. I have seen, in my friend circle, who do business, create HUF and divide income between heads and end up paying a lesser tax than me, who is salaried plus earn lesser in a year, for the household. This is also tax evasion, at least morally :-(

-BJ

[hondafanboy]

Originally Posted by Ranabegins

Let me state one fact very clearly here, people do steal taxes and a majority of people do that. I know Doctors, teachers, shopkeepers who earn in Lakhs per month but haven't paid a single dime or next to none in taxes. I have seen people who own multiple cars but still haven't ever paid taxes. The mistake is not only of those people but also of the government as the government hasn't set up a system to catch these kind of people. The government needs to catch these kind of people in big number and make an example out of them.

I am not trying to preach here but Since you know these wealthy doctors , shopkeepers , why dont you report them anonymously ? I agree with you that government should have the system in place and catch them themselves but I think citizens can report too and IT's website has some info on the methods to report. Who knows, someone like Ajay devgan from the movie Raid will catch that tip and execute 😀? Again, easier said than done but as someone once said, be the change you want to see.

[2000rpm]

Originally Posted by KPR

My desire: Why not remove these direct taxes altogether and add it to the indirect means? Pathetic data on tax payers in India.
Such data makes me introspect my career choices. But only green grass there is that a tax payer is honest. Is there a trophy for that?

My only response to that as a honest tax payer is, Bas Kar Pagle, rulayega kya.

And I actually feel the same way, when I see my businessmen friends benefit from everything lik buying a car to even a mobile, as they can pass these things off as costs and hence are tax exempted.

[wildsdi5530]

Originally Posted by RoadMonkey

A person consuming less as a necessity due to low income does not make the indirect tax not regressive. Food is essential, nobody can live without food. Believe it or not, life without iPhone is possible.

Exactly my point. I'm no economist but I do understand that there are different strata to spending. Any one can buy a cotton shirt for Rs. 500/- all the way unto Rs. 50,000/-. But the one showing higher income has to pay an additional tax regardless of his expenditures. I'm not sure but I think in some states in the USA, Familymen pay less taxes than single persons.

Originally Posted by Gaur

People might reduce consumption to avoid taxation and this in turn can have an -ve effect on the growth.

This hits the nail on the head. We have to be a consuming economy for the govt to generate revenue.