(Outlined System herein below is The Solution for the Economic Revival of India)
A few years back, when the world was looking at us with high expectation of growth and stability, the apathetic fiscal management severely dented the Indian economic system. The erstwhile Indian Government failed to appreciate the ground rules and requirements of a growing Indian economy. When Indian corporate was looking at world map for their next destination, some over-enthusiastic Economists did everything possible to rattle the aspiration, ambition and dignity of the entrepreneurs and their enterprise. Why did they do it? This is a question for everyone.
Anyway, that is past. India has to come back and cover the losses of sixty seven years. In 1947, one rupee was giving us one dollar and today we have to pay almost sixty rupees for a dollar. As a person of basic virtues, I am more than confident that, an emotional connect to country and little financial sensibilities in economic policy framing can progressively take us back to 1917. I am sure, our new PM will show us again, those respectable days.
Although, Mr. Modi has the best of the technology and talent around him to coordinate his plans and proposal, with all the humbleness, I would like to mention some suggestive ideas for the desired upgradation of Indian Fiscal System.
It is foremost important that the fiscal system should not be draconian, excruciating and compelling. It should be appeasable and amenable. Present Indian fiscal system is not only perplexing but also mystifying for a common person. In existing format, Government is collecting revenue through multiple and multilevel tax legislation. The basic concept of Indian tax laws is centuries old and had its origin somewhere in Egypt. It is written in thousands of pages and most seasoned tax professional are often found totally befuddled in their interpretation and application. That is why the end result is recent cases of Nokia and Vodaphone. These two cases have disgraced and embarrassed the country around the world. We need to have fundamentally something very different from the present.
Although, hard to believe but, it is practically possible to write entire Taxation Law in simple English and in just few pages (at the most 75 pages). The scheme mentioned herein below is extremely simple and manageable without the fleet of tax collecting agencies and officers. In fact this scheme will increase the quantum of revenue collection by manifolds without bullying and coercive procedures. I will call it, “Consolidated Revenue Act of India”.
The Consolidated Revenue Act can be drafted on the followings lines.
1. Consolidation of Old Revenue Acts - Income Tax, Wealth Tax, Service Tax, Security Transaction Tax, Dividend Distribution Tax, Excise, and Customs Acts etc. can be consolidated under one single Consolidated Act.
2. Chapters – The proposed act, will consist of chapters such as Direct Tax (Income), Central Excise (Production), Custom (Imports), Service Tax (Services ) and one chapter of Common Provisions applicable to all other chapters.
3. The Salient Features –
3A. Direct Taxation
3A 1. Basic Income Tax exemption for all the individual assesses should be Rs. 5, 00,000/- and for all others assesses Rs. 1, 00,000/-
3A 2. The nature of income will not be classified / discriminated e.g. salary, interest, business income, capital gain etc. Income is a income irrespective of its source of generation (source is irrelevant).
3A 3. All individuals to pay tax @ 10.00 % of the income over first Rs. 5, 00,000/-. No slabs, no deductions, no exemptions, no incentives and no allowances, no carry forwards, no set off. No distinction in the nature and source of income.
3A 4. All other resident assesses (Corporate, Firm, Trust, AOP, BOI etc.) to pay tax @ 15.00% of the income. All non - residents and institutions with foreign ownership of more than 50% to pay tax @ 25%. No surcharge and cess.
3A 5. Accounting Year should be calendar year to globalize the Indian Economic System.
3A 6. Advance tax to be paid quarterly. Difference if any at the end of the year, allowed to be deposited before the filing of Income Tax Return subject to the condition that, the difference will not exceed 10% of the total tax payment.
3A 7. Financial Accounts should be prepared for tax purpose on cash basis (not on accrual basis). This will stop accounting manipulations. Except business income no other income will be allowed expenditure deductions.
3A 8. A uniform depreciation rate of 10% will be applicable for all the assets except land. All assesses will use straight line method only. Classification of assets will not be required for the purpose of depreciation.
3A 9. The business losses will not be allowed to be carry forward / set off. The carry forward and set off results into complications and manipulations only.
3A 10. All tax returns to be filed on or before 31st March as the accounting year ends on 31st December.
3A 11. All assessments should be completed within one year from the date of receipt of the returns.
3A 12. All returns to carry a statement of income, assets & liabilities.
3A 13. The returns should be selected for verification using only random computer picking method. Department must verify at least 10% cases rigorously. All returns to be certified by Chartered Accountants. They should not only draft the returns but also verify the facts and figures given in the statements. Verifications (Scrutiny) of Income Tax Returns should be conducted on the basis of standardised questionnaire valid for the entire country. Questionnaire should be dexterously drafted so that all facts are cross checked in questionnaire itself automatically. All assessment orders should be signed by three officers i.e. Joint Commissioner Income Tax, Assessing Officer and an Inspector.
3A 14. The discontented Assesses should be allowed only one appeal against the order of the department to an Appellate Authority (Bench of 11 members). Order of Appellate Authority should will be final. Appellate Tribunals should be setup in reasonable numbers. Members of tribunal should be nominated by professional bodies, Supreme Court and the Government. All appeals should be settled in maximum three hearings or a period of six months from the date of the filing of the appeal.
3A 15. Incase of default / delay in payment of tax on time, assesses should be charged penal interest @ 36%. In case the Appellate Authority discovers willful negligence or tax evasion assesses should also be subject to prosecution (imprisonment) of minimum one week to three years. Chartered Accountants certifying returns / Balance Sheet should also be accountable to their work directly. If they are noticed to be guilty of professional misconduct, negligence, they should also be subject to strict action including permanent cancellation of their recognition / certificate of practice.
3A 16. All Government executives should declare their family assets as on 31st December every year. A separate authority should be created to check these statements on random basis. The definition of family should include assets owned as an individual, as member of HUF, Assets controlled as trustees and assets of dependent family members etc.
3A 17. Farmers and agricultural companies earning agricultural income in excess of Rs. 5, 00,000 should also be subject to all taxes like any other entity.
3A 18. TDS should be deducted at the flat rate of 10% from payments like salaries, interest, rent, winnings, dividends etc.
3A 19. Any individual living outside the country for more than 180 days in a calendar year should be treated as Non-Resident Indian. All others are Residents.
3A 20. Income earned by non - resident outside India not to be taxed in India irrespective of the duration of their stay in India. All residents will be subject to tax on their foreign income, subject to double taxation agreements with individual nations.
3A 21. Capital gains should be taxed like any other income. Capital gain should be calculated on the basis of net sale price less net purchase / acquisition price. If the asset sold, was not purchased by the seller, the entire sale price to be treated as income. Dividend income should be taxed as any other income.
3A 22. Non-filing / Late filing of returns to attract minimum fine of Rs. 10,000/- or 50% of tax and interest due whichever is more.
3A 23. All monetary gifts should be treated as normal income. All marriage gifts to be taxed as normal income irrespective of donor. Gifts in kind in excess of Rs. 50,000/- to be taxed as normal income.
3A 24. Wealth tax to be charged at 1.00% of net wealth in excess of Rs. 2,00,00,000/-. The wealth means only land without building, unutilized real estate, jewellary and cash. Rest of all assets should be exempted. The logic behind taxation of wealth should be discouraging the people from investing and holding in unproductive assets.
3A 25. Estate duty should be charged @ 5.00% of net wealth inherited if it exceeds Rs. 5,00,00,000/-.
3A 26. Raids & Surveys should only be undertaken in unavoidable circumstances with the specific permission of Chief Commissioners & Chairman CBDT. Officers recommending raid proposals should be accountable. Details of Raids / Surveys conducted and their final results should be placed in the Parliament.
3A 27. Anyone in possession of cash in excess of Rs. 15,00,000 without proper explanation should also be subject of police action and enquiry also.
3A 28. One individual should be allowed to open only one bank account in one city.
3B Indirect Taxes.
3B 1. The goods for Excise and Custom Duty should be classified under only four heads instead of several hundred heads presently. Central Classification authority should be appointed.
1. Essential for Life – No Duty
2. General items – 8% Duty
3. Luxury Items– 15% Duty
4. Super Luxury Items– 100%
3B 2. Service Tax should at 8% of the gross value of services rendered where annual value of total services rendered is in excess of 50, 00,000/-. No exceptions & no exemptions, no classifications. CENVAT credit should be allowed.
3B 3. Provisions regarding assessment, interest, appeal, etc. can be common and same as applicable to direct taxes.
3B 4. All other taxes to be withdrawn. VAT to be operated at State level. CST to be withdrawn.
4. Authority of Advance Ruling - One single authority will be setup to issue clarifications through emails to tax payers and tax collectors. All clarifications will be provided in three working days and shall be subject to payment of Rs. 5000/- . The authority will consist of multiple members representing ICAI, Finance Ministry, Reserve Bank, Supreme Court etc.
5. Old Assets Declaration Scheme - Indian infrastructure development projects need gigantic funds which can neither be generated through tax collections or borrowings. It is a well known secret that, Indian economy has a parallel economy flooded with enormous wealth generated through dubious means and methods. In past the governments made attempts to legalise these funds but not even a fraction of the total amount could be realized. Through this single source of funding, enormous financial resources can be raised for all the financial and infrastructural needs of the country.
The Government should offer a Scheme for introduction of capital in specific sectors. The scheme unlike past should be open for a longer period of time, may be 3 to 5 years. Larger duration of the scheme will help the entrepreneurs in planning and execution of projects. The scheme may provide total immunity from penalties and prosecution if the declarant pays a tax of 12.5% and declared assets are invested for the development of Infrastructure e.g. Education, Health Services, power generation, transport, communication, rural development and Family Planning etc. This will also facilitate the transfer of Indian funds parked outside the country. The scheme should be unconditionally apply to all irrespective of their caste, class and creed. Although, proposing these schemes again and again is painful, but in the overall interest, we have to make certain compromises and sacrifices with the policies in the overall interest of the country. If we want development faster than China, we hardly have any choice.
6. Free Trade Zones
Andaman & Nicobar and many other Indian Islands can be utilized for developing free trade zones on the lines of UAE, Hongkong, Mauritius, Malta, Bahmas etc. The indirect revenue from these Zones can be a mind boggling figure. Besides, great export market for Indian business. Since, this subject is directly connected with the economical development of the country, it is placed here.
7. Export of Arms and Defense Material
This is most profitable business in whole of the world. All developed countries technically survive for substantial revenue on this industry. Besides, the industry gives international political maneuvering capabilities. This industry should be encouraged, supported and subsidised through private sector participation. Since, this subject is directly connected with the economical development of the country, it is placed here.
8. Border Super Highway Connectivity
India should go for Super Highways along with its land locked and costal borders. The super highway will provide 16 lane road movements at 200 + Km. an hour speed. It can also hold a Railway track (wherever geographical limitation exists, suitable modifications possible). Such highways will help in countrywide infrastructure development, costal development, local employment, border security etc. etc. Besides, the Real Estate Development all along with super highways will do the entire funding for this project. The Government will not be required to do any funding. Since, this subject is directly connected with the economical development of the country, it is placed here.
9. General Provisions.
9A. Cheque Bouncing should be treated as a criminal offence. Punishment u/s 138 is not sufficient. More strict & enforceable law required.
9B. Individual loan defaulters and all directors of defaulting companies should be blacklisted and their names be published on 1st January every year in the national newspapers and remain on the government websites even after their death. Passport of all such persons should be confiscated. No further loans to be granted. Action under any other law also possible. Withdrawal of voting right etc.
9C. Special status should be given to all citizens who have achieved exceptional success in their business or profession. The criteria of selection could be : Chairman of the company employing more than 10,000 persons, Capital employment of more than 5,000 cr., Corporate Income Tax contribution of more than 500 cr., Corporate Excise Duty / Customs payment of more than 500 cr., Individual Tax contribution of more than 50 cr., Corporate Exporting more than 5,000 cr., Corporate Imports more than 10,000 cr., Turnover more than 50,000 cr.,
Special Status may mean privileges like: Business award by the President, Diplomatic Status for the Chairman of such corporate, Free Personal Security by Government, Central Cabinet Member Status, Blue Light Vehicle, Etc.
The system proposed herein above offers total transparency. A small number of taxman will be able to generate more than ten times revenue in an efficient manner without any kind of policing, coercion, compulsion.
In this context, Baba Ramdev has also presented some ideas. According to him 2% banking transaction tax can be adopted to replace existing taxes. But, a deep study leads to chaotic situation for the economy as a whole. In fact, the proposed system of Baba Ramdev has already been tested by some countries in past without much success.
I suggest to our most respected PM and his Governing Body to accept these proposals in the interest of every common person. For doubts, discussion and detailed presentation - please do not hesitate to call me on my cell no. 98-100-46108.
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Research Paper By: CA A. K. Jain