We often hear the elegy that in a country of 135 crore, hardly 1.5 crore people pay income tax although thrice of that number file returns. The answer is not far to seek though. We have right from the beginning exempted agricultural income from income tax on the specious ground that agriculture is a state subject. That in one stroke eliminates some 60 percent of the populace from the burden of income tax though in fairness it must be conceded that many of them may not be having taxable income. But what about those who have taxable income?
Live TV
Loading...
Why spare them except make them pay income tax on their non-agricultural income at the rates warranted by their combined income i.e., non-agricultural income as increased by their farm income. Do we not tax doctors though health is a state subject? It is common knowledge that the elitist and urban phenomenon of farm houses alongside the outskirts of major cities and town has for its gravitas this cynical exemption. The bottom line is farm houses are all about luxurious living in sprawling havelis with a sprinkling of make-believe farming—farm house is too exempt from income tax. The make-believe farm income is an excellent foil to laundering black money.
Likewise, we have conferred blanket exemption to charitable and religious trusts. So much so that most of the educational institutions and hospitals are run by trusts. There is no charity practiced by them with the top court of the land saying charity need not underpin their existence so as to be eligible for exemption. They charge enormous tuition fees and foist mind-numbing hospitalisation bills and make tidy profits but yet thumb their noses at the taxman.
And again, we pamper the share market with a soft and flat 15 percent and 10 percent tax on short term capital gains and long-term capital gains respectively with the first Rs one lakh of long-term capital gains being exempt in any case. Why should we tax a salaried person with a heavy hand and pamper the share market? Given the heavy volume of trade witnessed in the market, securities transactions tax (STT) does add to the tax collections but that does not mean capital gains should be indulged. Foreign institutional investors with deep pockets make merry in such a licentious regime.
This then is the nub of the issue. In addition, even today women folk do not earn except in urban areas to a small or large extent and children who we have in large numbers too do not earn. Senior citizens whose tribe is swelling thanks to longevity also do not pay income tax by and large as they are past their earning days.
Yet, there is a crying need for expanding the tax base. The presumptive tax scheme on traders hasn’t taken off in a big way as the soft deemed income of 8 percent of the turnover presupposes a large turnover of Rs 31.25 lakh as to give rise to an income of Rs 2.50 lakh, the tax-free threshold. What we need to do is to cut the Gordian knot by what Columbia did long ago—tax on the basis of visible indicators of wealth. An owner of a swanky car is presumed to be earning say Rs 10 lakh a year. If he in addition owns a fancy house, he is deemed to have earned Rs 20 lakh and so forth. Of course, such presumptions should be allowed to be rebutted. The idea is not to foist on them an unreasonable tax but to smoke them out. The present regime of smoking them out through Annual Information Report (AIR) filed by banks, mutual funds and sub-registrars isn’t yielding much results.
It is human for one to flaunt. One may hide his income but he simply can’t hide his abode and means of locomotion. If he lives in a posh area with all accoutrements of wealth, he must be presumed to have ample income to support his lavish lifestyle. Such an assumption can by no means be assailed as far-fetched or overreaching. In such a milieu, the taxmen would stop obsessing with the salaried class, the sitting ducks, and turn their attention more productively on the habitual offenders.
— S. Murlidharan is a CA by qualification and writes on economic issues, fiscal and commercial laws. The views expressed in the article are his own.
Read his other columns here
(Edited by : Ajay Vaishnav)
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
Amethi Lok Sabha election: Can BJP's Smriti Irani retain the Congress bastion she won in 2019?
May 19, 2024 10:12 PM
Rae Bareli Lok Sabha Election: Can Rahul hold on to this Gandhi family bastion?
May 19, 2024 10:09 PM