In anticipation of improved tax enforcement, the Central Board of Direct Taxes (CBDT) has introduced a new type of form for filing tax returns and form 26AS, whereby form 26AS will now be preloaded with investment details as well. With this, the CBDT has given people another opportunity to file correct and valid tax returns by July 31 for the 2018-19 assessment year.
The CBDT scanned computerized taxpayer records and sent messages to taxpayers who were found to be remiss in their duty to the nation via the Short Messaging Service ( SMS), and emails to them, and also you can verify any Indian company by searching for their GST details.
The big question is why they need such an exercise at all? Given numerous revolutionary ideas the CBDT has adopted to motivate people to pay their taxes on a regular basis, India has not progressed towards a realistic and simple tax regime where people are faithfully filing their taxes and disclosing their true income. We also have to enter a point where we, as a nation, are able to file our taxes and report our real profits.
Given this general reluctance to pay taxes among Indians, an entirely new tax regime should be introduced without the largely misused exemptions we have at present. Why do we have to give taxpayers two confusing options, either to make use of some exemptions or to get a flat basic Rs5 lakh as tax-free income? Only the above Rs5 lakh option must be maintained as a tax-free income.
Further simplify the tax system by abolishing suspension, surcharges, etc. It is worrying that, despite repeated government assurances, the much-awaited, new and simplified Income Tax Act was not introduced in the country to replace the 1961 six-decade-old Income Tax Act, now full of confusing amendments.
Implementing the recommendations of the Raja Chelliah Committee to set the highest tax slab at 30%, in line with most countries around the world, had abolished the practice of turning black money into white money. Increasing the highest slab slowly, as well as introducing cessations and surcharges, has eroded the progress accomplished earlier. Hence, the highest 30 percent tax rate should be restored so that it is beneficial for people to keep their income books clean.
Instead, a permanent Voluntary Disclosure Scheme (VDS) with a requirement for individuals to report their income at the maximum recommended tax rate of 30 percent should be implemented. It could be any revenue without having to disclose its source to the taxpayer.
This will account for all cash transactions, particularly in property deals, if the registration fee for property deals is also reduced to just two percent from what it is now. The names of all those who disclose their income under the proposed 30 per cent slab should be on the website of the tax department so that status-conscious people can race to disclose their income.
The basic tax exemption now set at Rs5 lakh will pave the way for the abolition of all tax exemptions, including welfare, gifts, political party contributions, and even agricultural profits. The fact remains that an ordinary farmer earns no more than Lakh Rs5. And this provision is being grossly misused by ultra-rich people, including celebrities, to declare their uncounted income as agricultural income by buying some farmland meant for tax evasion purposes only.
The income tax slabs should be 10% and 20% respectively for income between Rs5-Rs10 lakh and Rs10-Rs15 lakh, and 30% for the rest afterward. The recommendations of the LK Jha Committee to make the Financial Year (FY) calendar year, too, should be adopted in line with most countries worldwide. April-March fiscal year is a colonial tradition that was imposed in India by the British for their own interests and convenience.
Instead of concentrating on small cash transactions through BhimApp and so on — resulting in fraud committed against analphabets — all sales and purchases above Rs10,000 should be made through bank transactions alone. To do this, credit card transaction charges should also be slashed to a mere half per cent (goods and services tax-exempt). This, too, should be borne by the Central Government, with the elimination of all benefits for transactions made by credit cards.
Such a program would offer the government much higher tax revenue. Current credit card transaction fees of two percent force traders to charge it separately from customers, especially where the trade margins are low. Banks issuing credit cards can gain even more, due to their increased use, even with a half percent transaction fee. Plus, for each GST-registered dealer, two sets of credit card swiping machines should be made mandatory to prevent cash payments by those trying to circumvent taxes.
The GST regime's input tax credit program is the biggest source of corruption and tax evasion, especially in the manufacturing sector. GST invoices left out by ordinary customers are sold to manufacturers/producers by traders in order to make use of false input tax credit. Reforms in the input tax credit system can only be accomplished by drastic changes in the GST tax structure, where there are effectively only two 10% and 30% GST rates, removing all other current GST rates.
The abolition of three and five per cent lower slabs would be more than offset by the abolition of 12 and 18 per cent slabs. On the other hand, the elimination of the highly inefficient scheme of Input Tax Credit from the manufacturing and processing sector would bring much more revenue to the exchequer and will not benefit manufacturers/producers due to the elimination of 12 and 18 percent higher GST slabs.
Similarly, an 18% GST is excessively high in the service sector, where, for example, those participating in TV panel discussions have to pay about half of their tax fees, including GST and income tax. All government payments can be considered exempt from GST in order to avoid unnecessary accounting by moving tax from one pocket of government to another.
Unfortunately, unconscious policymakers put 18 and 28 percent respectively of clutch-plate and clutch-bearing under different GST slabs. Related products sold by confectioners, such as candy, cookies, savory products and so on, attract various GST slabs, with candy triggering diabetes attracting just five percent GST.
In order to avoid ambiguity and abnormality, invoices for items such as gold jewellery can be drawn in two sections, one for metal and embodied objects and the other for making charges so that only the latter can pay 10 percent GST. Cessation of extra-luxurious products in multiples should be supplemented by additional GST slabs, in some cases going up to 50%.
The Government must also bring petroleum products under the GST regime to ensure that petrol and diesel prices are uniform in all states. India is currently the only country in the world that has so many GST slabs. Zero percent of GST should be maintained only on fully unbranded raw materials that can not be consumed without giving them a finishing touch, such as agricultural goods, fish, meat, cotton, yarn, etc.
All long-term products such as vehicles, air-conditioners, TV sets, refrigerators and so on could attract 30 per cent GST while their sections could attract 10 per cent GST uniformly. Ultimately, the government needs to realize that tax rationalization on even small things can lead to more revenue earning for the government and turn a country that avoids paying its taxes into one that is proud to do so.