Thursday, September 26, 2013

Very Few People In India Pay Income Tax

Only less than 3% of Indians pay income tax as per the India’s finance minister.  He told that 2.89 percent of the Indian population i.e. about 36 million people filed Income taxes.  This is in contrast to U.S. as there 45% of the population pays the taxes. Thus, large chunk of our masses enjoy the income taxes paid by these people.  Why this is so?
1.    The tax system is very complicated and not user friendly.  The ones who pay income tax also have to struggle hard in order to calculate and file their taxes.  The correct filing may not be there in all the cases.  Some of these individuals have to depend on the professionals in this field as the Income Tax act has a lot to confuse people and confound much information. Over the years inefficiency has been crept into the tax system.  This is very much camouflaged and thus helping the corrupt means of tax babus in the Government. Situations are improving as the transparency is being brought in through electronic means.  Simplification process does had some positive impact.
2.     Indians earning taxable income i.e. below 200,000 rupees annually or 16667 rupees per month may be majority in number.  Such persons have been exempt from paying the income tax.  Indians have among themselves many people even below the poverty line.  But to such individuals, Governments give the collected tax amounts by way of many schemes.  It is different story that the entire amount do not reach these unfortunate lots. 
3.     Farm income is also exempt from paying the Income tax.  There are many farmers who have much more taxable income, but due to this policy of the Government, their affluence is used for themselves only.  They may even be hiding the other incomes like that of rental and interest incomes with their agricultural incomes.
4.    Many industrialists and businessmen particularly traders who do have some farm land or their known or relatives have farm lands in rural areas also hide their real incomes and show as agriculture incomes if they buy some high value goods like property, cars etc.
5.    Although small businessmen in many markets/sectors, big or small, do earn a lot i.e. much more than 200,000 annual incomes, but they do not fall in income tax net as India being a very big people base and there are not matching IT loyal officers to catch such traders/manufacturers.
6.    Many traders/manufacturers are being helped by corrupt tax officials as there are many means created by these officials themselves which helps these individuals not to pay a penny to the IT Department or pay just a small petty amount.  Such individual entrepreneurs do maintain dual book system.
7.    Underground persons don’t share their wealth/incomes with the authorities.  So they do not pay such taxes, instead they collect their self framed tax rules from poor and rich people.  It is happening in many parts of the country that if some one buys a luxury item, one has to pay some amount to these individuals in order to live with less day to day problems from these underground individuals. Thieves, sex workers, gamblers, smugglers etc i.e. illegal activities which may have big sum incomes annually can’t pay by declaring such incomes.  Jail inmates also do not pay as they earn a small amount which is known to the authorities.
8.    In India, we have many political parties and thus have many people who are dependent on these parties for their earnings.  Quite a few may be earning from these parties which may attract taxation laws of the land.  But very few may be paying the Government direct taxes. 
9.    Majority of tax payers are those who earn their income as salary either from Government or from Private sources such as Public or Private Limited Companies etc.  Such individuals do attract provision of entire cut of Income taxes as Tax Deducted at Source (TDS) or at least 10% cut of TDS.  High worth individuals who deposit their wealth as Fixed Deposits etc. also attract TDS. Such individuals do file their returns and pay Income Taxes.  Even the proprietors of private companies do earn their salaries also pay the direct taxes on their salaries.

10. Majority of people pay indirect taxes, if they are supposed to pay.  It is worth considering that the Governments inbuilt the direct taxes into a form of indirect tax.  In any case they already have a system in place of collecting indirect taxes and make it a strong system so that everyone who is collecting the indirect taxes whether it is sales tax or service tax or excise duties or import duties or estate taxes etc. deposit the amount.  No doubt the system of indirect taxes also need more strengthening as we see that revenue generated by indirect sources is much less than that from Direct sources.   In fact there is need of consolidation of various types of taxes.  Then such individuals would be very few to deal with for revenue collection.  Problem of less number of tax payers would be solved and tax payers base would be very wide.

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