Every time Money Today does an issue on personal taxation, I am amazed by the fact that despite years of reforms it is still difficult to file one’s return. Even today, there are many deductions and exemptions that one needs to consider, and most of us can figure them out only by consulting an expert.
Then there are various interpretations of the exemptions and it’s up to the taxman to decide whether you are entitled to them or not. Why should it be this way? Why can’t the government simplify the tax structure, be it for personal income tax or corporate tax?
A year ago, Bibek Debroy, an expert on economic legislation, wrote in our magazine that “we need an IT Act that is no longer than 20 pages, (and which is) comprehensible to citizens without (the help of) chartered accountants, lawyers and courts”. I would go a step further. Why can’t we do away with all the exemptions for individual taxpayers? Why can’t we have two or three slabs of fixed tax rates for various income groups? In such a situation, no one needs to do elaborate calculations. You just need to add up the total income for the year and pay a fixed percentage as tax.
Nearly seven years ago, a committee on direct taxes headed by Vijay Kelkar made similar recommendations and proposed that most of the exemptions should be removed. It must be said to the credit of the past finance ministers that they took a few steps in the right direction. But the IT Act is still saddled with dozens of exemptions. It’s high time they are knocked off too. This is the only way we can encourage more people to file their returns and become honest taxpayers. The fact is that the number of individual taxpayers in India has increased by a mere 5% between 2005-6 and 2007-8.
There are millions of others, who should ideally come under the tax net, but don’t file their returns—either because they feel the tax rates are too high, or they are dishonest or they don’t understand the tax structure. These would include rich farmers, prosperous traders, self-employed individuals and consultants. The tax experts are more focused on helping their clients save taxes by skirting the law, rather than asking them to pay up what’s due. It is time to change this mindset, and the only way we can do it is by reducing the tax rates and doing away with all the exemptions.
