Any tax system shall be simple, logical, self-sustaining and shall promote patriotism. In Indian conditions, direct taxes and indirect taxes, being levied at Central level, State level or at the level of a local Government, shall be complimentary to each other, in the sense that what is difficult to collect in the form of indirect tax shall be collected directly and vice versa. Both the taxes shall be made in such a way as to promote an economic activity, to identify its existence in the society and to give satisfaction to the tax payee that he is indirectly participating in national endeavors by paying taxes. The taxation system in India needs to be reformed to meet these ends.
Although reforms were brought in, in the tax system several times, those were essentially related to changing the tax base, changing the rates and giving exemptions. The basic philosophy of tax system which gives great participative satisfaction to the citizens needs to be looked into in more detail, as also the routes for corruption or parallel economy that may likely to emanate through the tax system.
The tax payees are either natural persons or legal persons. The tax system, apart from laying down rules and procedures for paying tax, also empowers some of the legal persons, offices and enterprises to collect tax from the tax payers and remit the amounts to the Government. Adequate checks on the system of these remittances have not been made in the system, because of which some of the legal persons, offices and enterprises may collect taxes and then appropriate the moneys to themselves. Mere increase in the staff strength of the tax administrations may not check this menace. It can be achieved only through public participation.
At present, there is no address information system for identifying tax payers and tax collecting sources. In the absence of such a system, the tax payers would not have any recognition in the localities where they stay and the tax collecting sources would not have any check over them. There is a need to develop an address information system which makes it mandatory for the authorities to disseminate to the public the list of tax payers and tax collecting sources in each locality as also the tax amounts received from that locality every quarter. Such a system would induce individuals to report to the concerned authorities the names of such tax payers and tax collecting sources who in their opinion are partial or full defaulters. Penalties shall be so high for defaulters that no body would dare to ignore or misuse the law.
The Government must encourage savings, but it need not be through the instrument of taxation. Indian consumers are organised in the form of families by pooling their incomes at family level. The tax system shall not ignore this fact. Individuals belonging to families having more than one earning member or more than one source of income have more capacity to save. That shall not be grace for paying lesser income tax, as it would be discriminatory. Hence, savings shall be totally delinked from the computation of tax liability. Every income earning individual shall pay some tax to the Government as a token of his patriotism.
If savings is delinked from the computation of tax liability, there is no need to tax lump sum payments such as leave salary, pensionary benefits etc.
In line with the concept of trusteeship propounded by Mahatma Gandhi, the tax system shall encourage some charitable and socially beneficiary activities of the Haves for the benefit of Have-nots. For example, expenditure incurred for medical and educational purposes by the Haves for the benefit of Have-nots shall be exempt from income tax. Similarly, expenditure incurred (duly audited) for the development of urban slums and backward villages by the natural persons or legal persons shall be exempt from income tax. This measure will ensure maximum reach of benefits to the Have-nots directly, which is stated to be not reaching them through the indirect method of governance (taxation, planning and execution of development schemes).
In order to ensure participation of more citizens in national building, the lowest base for paying income tax may be further lowered, say to Rs. One lakh and the tax rates could be 5 %.
Ranganadham 