Dear professional friends,
In view of tax reforms under process through GST, Companies Act 2013, demonetization and Income Tax provisions under review to curb black money and corruption in general, I can say that Objective of Govt is good and will prove its worth in due course but some basic change in the Taxation and Corporate regime is necessary to curb generation of black money and tax evasion. Although Black Money and Tax Evasion cannot be rooted out completely yet it can be kept under control so that national economy can serve the common citizen at large. In my opinion following changes must be brought about in Taxation & Business Laws to set right the business & economic activities since inception.
1. All exemptions from tax should be removed from all tax laws because exempt products, services, incomes, business activities do not form part of economic activities and are not required to be reported or disclosed in the books of accounts, records, tax returns, audit reports, tax assessments etc and truly speaking the govt is not aware of correct volume of economic activities undertaken by people and most of the reports of income, production, sale, purchase and tax etc are grossly wrong since only such figures are fabricated on which tax has been paid or which can be tracked down from any other source.
2. To provide tax relief to certain class of people, small business enterprises, food products, medicines, agricultural products etc, zero tax policy can be made so that no tax is payable by the assessee to the govt and any tax paid by way of TDS, TCS, ITC or otherwise shall be claimed as refund. This will make people to ask for bills of their purchase/service even from retailers and pay through banking channels returns. At least all business entities will get registered with their PAN/Aadhar number and file returns that will provide economic reports of the country to govt.
3. Tax rates must be fixed according to assessee, products and income. Individuals should be liable to pay lower tax say @ 5%, 10% and 20@......essential products are liable to tax @ 0% and 5% and income from investments in banks, financial institutions & govt securities is liable to tax @ 10% flat. This scheme of Tax will encourage people to invest in govt and bank securities, purchase billed products, pay through banking system and scope of black money generation will become serious problem for large corporates.
4. Dividend and interest from companies & firms paid through banking system should be tax-free in the hands of individual investors though it must be liable to TDS and refund claim. It will encourage people to invest in business entities, earn tax-free income, file returns and provide information to govt about business activities as well. This will make private companies and firms also to work in professional way and disclose true affairs.
5. All Tax assesees who are liable to Tax audit under Income Tax Act, VAT Acts must be required to file certified/audited copy of balance sheet, profit & loss and cash flow statement with the annual returns. This will enable AO to locate differences, call for explanations and assess correctly as other authorities will also have access to information and it will be pretty difficult for AO and assessee to defraud revenue for bribe.
6. Lower Tax rates for non-corporate bodies than corporate bodies will discourage business people from floating fake or shell companies and firms, money laundering by selling assets at higher prices and getting equity shares at exorbitant premiums etc on one hand and will encourage MSME business houses on the other. In my words having 100000 millionaires is better than having 1000 billionaires.
7. Lower Individual Tax rates will make people DIRECT TAX PAYERS who currently pay tax through various business entities. Business Entities have actually become TAX COLLECTORS who are given power to collect tax from aam aadmi directly for GST and indirectly for Income Tax and pay it over to govt authorities. This creates good scope of tax authorities and businessmen to foster partnership, evade public revenue, create black money and proliferate corrupt practices. If tax payers base becomes large scope of tax evasion will narrow down in due course.
8. Large number of Tax payers will provide information to govt and public as well in respect of tax collections area wise, allocate funds to local authorities for local development. Unified system of GST and all direct Taxes will curtail dirty politics of accusing state govt and union govt by local authorities also.