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India Desperately Needs New Fiscal System to Accomplish Modi Dream

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. Anyway, that is past. Let’s look forward to a brighter future in the hands of indomitable team of Governors.  In 1947, one rupee used to fetch one dollar and let’s hope the time returns. I am confident that, an emotional connects to nation and financial sensibilities in economic policy framing can show us again those respectable days.

Present Indian fiscal system is perplexing to all concerned. Government is collecting revenue through multiple tax legislations. The basic tax concept is centuries old and had its origin somewhere in Egypt and travelled through Greece U. K. to India with British. Revenue laws are 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 the country around the world. We need to have fundamentally something very different from the present and aptitude to accept out of box thinking.

With complete new mindset, the entire revenue collection law can be framed in less than hundred pages. A suggestive scheme which will be manageable without the fleet of tax collecting agencies can be drafted on following lines. The simplicity itself will boost revenue collection by manifolds. The scheme may be referred as “Consolidated Revenue Act of India”.

The Consolidated Revenue Act can be drafted on the followings lines.
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 with dedicated chapters for each one.

The Direct Taxes may contain provision like, Income is a income irrespective of its source of generation, basic Income Tax exemption for all the individual assesses should be Rs. 5, 00,000/- and for all others assesses Rs. 1, 00,000/-, Individuals to pay tax @ 10.00 % of the income over first Rs. 5, 00,000/-, no deductions, no allowances, All other resident assesses to pay tax @ 15.00%, Foreign institutions to pay @ 20%, Accounting Year should be calendar year. Quarterly Advance tax, Accounts to be prepared on cash basis to stop accounting manipulations, Uniform depreciation rate of 10% for all the assets with straight line method, No carry forward / set off of loss to stop manipulations, Tax Returns to be filed with in three months, Assessments to be completed within one year, Returns to carry a statement of assets, Department to verify 10% cases rigorously.

All returns to be certified by Chartered Accountants. Verifications of Returns should be conducted with standardised questionnaire, Assesses should be allowed only one appeal to an Appellate Authority, All appeals to be settled in six months,  Tax defaulters should be charged penal interest, Willful negligence to be subject to prosecution. Chartered Accountants to be accountable, Agricultural income in excess of Rs. 5, 00,000 to be taxed,TDS to be deducted at the flat rate of 10% from payments like salaries, interest, rent, winnings, dividends etc.Individuals living outside India for minimum 180 days to be treated as NRI, Income earned by non - residents outside India not to be taxed in India, Filing default to attract minimum fine of Rs. 10,000/- or 50% of tax and interest due whichever is more, Monetary gifts to be treated as income. Gifts in kind in excess of Rs. 50,000/- to be taxed as normal income, Wealth tax on land without building, unutilized real estate, jewellary and cash to be charged at 1.00% of net wealth in excess of Rs. 2,00,00,000/-, Estate duty to be charged @ 5.00% of net wealth inherited if it exceeds Rs. 5,00,00,000/-, Raids & Surveys to be undertaken in unavoidable circumstances, Final results should be placed in the Parliament, Person in possession of cash in excess of Rs. 15,00,000 to be questioned, Individual to be allowed to open only one bank account in one city.

Indirect Taxes may contain provision like Excise and Custom Duty to classify all items under four heads i. e. Essential for Life – No Duty, General items – 8% Duty, Luxury Items – 15% Duty & Super Luxury Items –100%, Central Classification authority to be appointed, Service Tax should at 8% of value of services if total value is in excess of 50, 00,000/-. CENVAT credit applicable. Provisions regarding assessment, interest, appeal, can be common and same as applicable to direct taxes. All other taxes to be withdrawn. VAT to be operated at State level.

Central Authority of Advance Ruling – This will issue binding clarifications on revenue matter subject to payment of fee.

Infrastructural Funding - Infrastructure needs massive funds which can not be generated through taxes and borrowings. However, the well known parallel Indian economy of black money is flooded with wealth. This can be the possible and cheapest source for infrastructural funding. The scheme may provide immunity from prosecution subject to payment of 12.5% tax and application of funds for Infrastructure development. e.g. Education, Health Services, power generation, transport, communication, rural development and Family Planning etc. Foreign funds will flow in immeasurable quantum.

Free Trade Zones - Andaman and other 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.

Export of Arms and Defense Material - The profitable business in whole of the world. This industry gives international political maneuvering capabilities.

Border Super Highway Connectivity - India should go for Super Highways along with its land locked and costal borders. The super highway will provide 20 lane road movements at 200 + Km. an hour speed. It can also hold a Railway track Such highways will help in countrywide infrastructure development, costal development, local employment, border security 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.

General Provisions - Cheque Bouncing needs muscular prosecution law, Loan defaulters to be blacklisted and prosecuted quickly, Persons with exceptionally successful background in Business, Profession, Industry etc. to enjoy special status and some exclusive privileges.

The system proposed herein above offers total transparency. A small number of taxman will be able to generate far more revenue in an efficient manner without any kind of policing, coercion, compulsion.

After going through such an unconventional format there will definitely be some apprehension about the anticipated results about quantum of revenue both in short term and long term. The issues can be addressed. Besides, an in-depth analysis will show that the revenue system is simplified without actually waiving revenue. Besides, the new sources will generate additional revenue.

People who know the inside story of Indian economy understand that, only simplicity and reasonableness on the part of tax authorities  can make us honestly pay our taxes. In fact, the parallel economy also known as number two money will fade away and merge with productive resources. Moreover growth and development will automatically raise the tax collection. Some have opined that, an honest and courageous application of this scheme may take you back to the days of 1917 when I am told one rupee used to fetch 13 US dollar. Not to be surprised if US, UK and Middle East countries line up and solicit for your visas.

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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This blog is Created by CA Anil Kumar Jain.