Monday, February 25, 2013

“Tax the rich” or “Tax the people who are earning a lot but not paying any tax”, I support the second and you?

“Tax the rich”, is one of the catchphrases we are hearing regularly in these days. This is considered as most virtuous act, a finance minister can do. If targeted people support it, then they will be celebrated as an epitome of virtues; if someone opposes it, then they will be branded as morally bankrupt, selfish, enemy of general public etc. Thanks to systematic corruption, there is a general view that people who made money are not done it in an appropriate way, and rich are supposed to bequeath a part of their wealth to public.

Well, I disagree. Taxing the rich is not the solution for all of our economic problems, even though high sound bites make it more appealing. People who are generally working for government (I am talking only about salary not the sum coming through bribes) and reputed private companies are getting a salary, in which income tax is already deducted at source (TDS). This applicable for all legal transactions in stock markets, deposits in formal bank accounts etc. It’s altogether a different matter that, options are available to reduce the taxable income in the form of HRA, House loans, insurance policies etc. There are a number of people who are paying these taxes very honestly.

If government is more interested in augmenting tax rates for people - who are already paying income taxes - than enlarging the total number of people coming under tax bracket by coming down heavily on illegal transactions like havala, black markets etc, there is a good risk that people may start thinking about - why they should pay income tax? Now itself, there is a wide spread anguish among the people that, hard earned money they are paying to government in the form of income taxes are ending up in dishonest hands.

A recent Economist article says that,

“Before... reforms in 1991, taxation meant clobbering manufacturers with customs and excise duties...Farming, which employs half of all Indians, contributes only one-seventh of all GDP and is largely exempt from tax.)...

...Much of the economy remains out of sight of the taxman. A lot of the services sector is informal and cash-based. The property market is notorious for black money. Big firms in the formal economy pay a decent rate of tax, but many smaller businesses fall under the regime for personal tax, where compliance is poor. Surjit Bhalla, of Oxus Investments, reckons income-tax receipts are two-thirds below what they should be. Just 32m people, or 2.5% of Indians, pay income tax.” 

--- "A walk on the wild side - The Economist"

Do you really believe that, only 32mn Indians are qualified for paying income tax?

Government needs to come down heavily on people who are earning good amounts but not paying any tax at all; instead of forcing the people who are already paying, to pay more. Unreasonably putting more obligations on people who are properly paying tax, will be a punishment for earning more. If government really want to come up with taxes then bring in inheritance tax, where new generation will inherit huge amounts from parents without actually doing anything other than a birth by chance. But that also should be fair and just.

Remember, when you tax super rich they will bring in a super chartered account and bring down the tax through already existing loop holes to practically small amounts.


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