Time to abolish income tax?

Only 3.7 crore I-T assessees in a population of 125 crore

The BJP National Executive meet held in the beginning of the New Year termed note ban a sacred movement and said that it would lead to clean economy. It is a momentous decision. All future references to Indian economy would be made in terms of Nov 8, 2016, the day Prime Minister Narendra Modi announced demonetisation. It would separate the new economy from the 25-year-old liberalisation-globalisation of 1991.

It has its positives as Finance Minister Arun Jaitley says that money has lost anonymity after demonetisation. He also says the decision carried pain and short-term drop on economic activity on account of currency squeeze. He also lamented that the society is “hugely tax non-compliant”.

According to Jaitley, there are only 3.7 crore income-tax assessees in 2015-16 in a population of 125 crore. Of these, 99 lakh had income below Rs 2.5 lakh and paid no taxes, 1.95 crore had income less than Rs 5 lakh, 52 lakh had income up to Rs 10 lakh and only 24 lakh have above Rs 10 lakh.

This has led to stormy discussions. Does this country have such poor individual incomes? It looks a bit awkward. Unfortunately, the reality is that. There are income-tax evaders but even liberally estimated, their numbers would at best be equal to the number of taxpayers, may be far less.

The income-tax at the highest rate of 33 per cent is levied over an income of approximately above Rs 80,000 a month, 20 per cent tax on income above Rs 45,000 a month and 10 per cent above Rs 24,000 a month.

The bulk of the I-T payers are salaried people in the organised sector. The actual salary level in the organised sector is low. In the unorganised sector it is even lower. The I-T assessment levies taxes on salaries paid on record. It ignores that at least half of the organised private sector asks their employees to return 10 to 30 per cent (in some cases more) of the recorded wages in cash.

These employees are also not paid statutory benefits like DA, medical reimbursements and provident fund. In many cases, the employees themselves are forced also to pay the employer’s share of the PF and ESI. It includes almost the majority of private education institutions from primary to the university levels, NGOs, industries and other organisations across the country.

Unfortunately, it is happening in even governments institutions as large number of the employees are outsourced to contractors. Some cash refunds are also paid by the contractors to some Government employees too, it is alleged. Shockingly, it is happening in the national capital, Delhi, itself.

These exploited employees pay income-tax on the recorded salary – a double whammy, suffer random salary cuts at the whims of employers. Nobody over the decades has come to their rescue. The labour courts or any other court can do little as they function on evidence.

The onerous note-ban is supposed to eliminate black money. But nobody has thought of the plight of these poor employees many of them taxpayers as per their recorded wages. None has devised ways to stop generation of this exploitative usurious practice. The governments are voted by these poor people in expectation that every new government would do a little for them. Even demonetisation has not helped them.

Can any demonetisation stop this massive generation of black money by all kinds of employers across the country? The country needs to realise that real wages are not that shown on papers. If that is taken into account, the actual tax-payee (over 90 per cent are employees) would be less than 3 crore. A discreet survey by National Sample Survey Office (NSSO) may be able to unravel the truth but may be not the whole truth.

People want a friendly government, banking and other institutions. Stringent rules lead to larger corruption. The government needs to simplify rules and taxes. It calls for a relook at levy of income-tax. The cost of its administration is more if at least not equal to what is supposedly generated. The government would do a great job if the income-tax is gradually abolished and banking rules and charges are put to a minimum.

It would unleash huge money flow and lead to more productive expenses by people. It would cause a massive, approximately Rs 2 lakh crore, savings on I-T collection paraphernalia. Let the sacred moment that has come leads to purify the system and the government acts with larger heart else the muck would continue.

By Shivaji Sarkar