Quota for Tax-payers!

Humourous Thought (Thanks Swami for this gem!):

A fine is a tax for doing wrong. A tax is a fine for doing well.

We, the Indian salaried class, run the country with our Tax-Deducted-at-Source (TDS) + Surcharge + Cess, is well-known. Ofcourse, there are the Ambanis, Mallya, Birlas & even Shah Rukh Khan & Akshay Kumar, who’re some of the top tax payers of the country. But then its us who pay a relatively high tax as compared to the business class.

During a discussion with my friend KV (K. Venkatesh – I’m sure most of you know him) on this subject last year, he’d pointed out that as compared to a relatively secure job & confirmed salary at the end of the month (yeah, the IT Dept. thinks so!), the businessmen carry a relatively large business risk of the business not doing well and their investments going for a toss.

So seemingly all’s fair.

However, I’d like to point out – though I would probably be the lowest earning member of the apartment complex I stay in here at Bangalore, I am probably the highest tax payer amongst them all, if you compare the incomes! Any purchase that the businessmen (no offence meant!) do like a property, a car, or a music system, or books, CD, DVDs, or even a computer at home – they claim it all as business expense & even register losses. They even make their wife & children as partners in their businesses and withdraw plump salaries on their behalf. While we, the salaried class, get *limited* rebates that too for home-loans & investments only. Nothing personal here, and I know they all work very hard too, like us.

This is also true for small shop owners like roadside paan-wallas, electricians, etc. I’ve heard stories of paan-wallas who come to their shop in chauffeur driven Toyota Corollas & Honda Civics.

These are also the people who don’t bother about paying a bribe to get their work done at government offices. They have (obviously untaxed!) black money, which they can splurge at the drop of a hat.

So: what does an Indian income tax-payer get, as compared to an income tax-defaulter? NOTHING!
The Indian tax payer doesn’t see any value in paying income tax.

This has been pinching me and I’ve been carrying these few thoughts about how to get some special value-adds for the tax-payers, as detailed below.

This thought may not be 100% in its own – with my relatively limited knowledge of “how things work” here – but I’d like to suggest this and I feel confident that this (or an appropriately modified form!) can help be a boost to the tax collections in the country.

Tax payers in the country should be categorized based on the tax-slabs and/or the annual tax they pay. The National IDs which the government plans to issue to all the citizens can have this added “Tax-payer status”, and/or be differently colored for different categories. This can also (more appropriately) be done at the PAN card level, but with the logistics involved in getting all the currently issued PAN cards updated, it might be a grand exercise. So while the government is at it for the National IDs, why not add a PAN number & tax-payer status to it.

Based on the tax slab and/or annual tax paid categorization there should be various priorities/reservations (or if you want to call them with the fashionable: Quota!) available to tax-payers for various things like a new phone connection, a new gas connection, bus/train/flight reservation, a new water connection, a new electric connection, a court case hearing (even special fast track courts), school & college admissions, and such.

This may sound similar to an “economic condition” based quota system which was proposed by many as against the currently misused caste & religion based quota system.

Benefits, that I think of:
1. The tax payers will see *value* in paying income tax, rather than defaulting on it.
2. More & more currently non-tax payers (or defaulters) will want to come into one of the tax-payer brackets.
3. More people will start declaring their correct income & start paying their income tax due, to climb up the tax-payer category.

When more people start paying tax, I also think more people will start looking forward to & ASK for better facilities and amenities from the government. People will reduce/stop paying bribe for government work – because their black money resources will have reduced. The government collects more money and hopefully pays the government servants much better, and they don’t ask for bribes anymore. (Yeah, & I’m dreaming!)

Anyway, endless thoughts! Need to stop somewhere… But the prime target:
1. Recognize the tax-payers and give them special treatment.
2. That way, get more & more tax-payers
3. And, collect more tax money

Swell idea, or a stupid one? Let me know your thoughts!~

13 thoughts on “Quota for Tax-payers!”

  1. From capitalist standpoint, it is always better to be working for yourself, with all the attendant benefits. Reality is not many can withstand the risk.

    As to having quotas for Tax payers, it has been proposed before. But, it doesn’t work in most democracies for a simple reason:

    One may pay more tax, but he can still have only one vote.

    The reality is as of 2008, about 3% of Indians paid direct taxes. Tax base (people paying taxes) is currently growing at about 2.5% CAGR. At this rate for about 10% Indians to pay direct taxes, it’d take almost 20years.

    So, that can’t be the way. The only way is – Shift from Income Tax to Expenditure tax!

    It is possible to hide income, but very difficult to hide expenditure. Even a businessman, who claims all deductions on his income, in reality is committing expenditure.

    The pan stall guy will be spending on all sorts of things, including the car you mentioned.

    The real challenge then would be to figure a way to account the expenses. There should be no scope for cheating in accounting for the expenditure. There are couple of possible models for that, but it will have one time cost (like smart cards etc).

    But, I see two benefits from this system. An equitable burden distribution, instead of how it is today. Control of Black & Fake money.

    Hope govt. figures a way.

  2. I understand!

    As a matter of fact, a friend at Nous, Manjunath Mahashetti, (after reading the blog) did mention about expenditure tax being the best way forward. We also discussed it could get really complex (as rightly pointed by you as well), as there cannot be a fixed slab for everyone. So yes – it *is* a tough job for the govt. to figure out.

    Thanks for your valuable comments HK Sir! 🙂

  3. So how can one, differentiate between Non- Tax payers and not eligible to pay tax, of course they both are not contributing a penny to govt., this mean the person who is genuine (Non Tax payer) will not able to get the benefits (opposite to socialistic principal, which was the main or only view of Nehru while formatting guidelines for this country). If i can tweak quote as benefit delayed is benefit denied, will hold good.

    1. But Sudhakar… where’s the differentiation even now?

      Most important, there’s a need to incentivize the tax-payer, so more people pay it and the government has better collections. The thought is about tax-payers & tax-defaulters. 🙂

      Remember VDIS?

  4. Hey, great post, really well written. You should write more about this. I’ll certainly be subscribing.

  5. That was something meaningful.
    Hope posts like this and more will help us in some way.

    Thanks. 🙂

  6. I like and agree with the basic concept of recognition of the tax payer and incentivising the tax payment. If tax collection were a competitive business, players would have started giving “cash-back” or such plans by this time.

    Regarding the suggestion of “expenditure tax”, I think it is already there, because, when you buy most of the non-agri products, you would be indirectly paying tax to the govt (VAT, excise, sale-tax etc are passed on to you). As they say, no one can escape death and tax–including you envied neighbours.

    Keep writing Nirav!

    1. Nothing is competitive within the government… except for plump postings! 😉

      Thanks Prakash!~ Keep visiting… 😉

  7. But i dont think it would be possible to force the persons who have black money to come out with the “complete” tax.
    What i mean is, when benefits are given and they realize that benefits are being given, they will immediately see to it that they come out with a ITR which states that their earnings are lesser than the lowest tax slab. So they still dont pay tax, and get all the benefits.

    1. Nope Sachin! The concept is to create slabs for the benefits based on the slab/amount of tax that you pay. If you under-declare, you still don’t get the full benefits.

      Yeah, though one thing possible is – people would pay the tax barely to fall into their target slab and get the benefits.

      Yes, loop-holes are possible – but I seriously feel there will be more tax payers, and more tax would be collected. 🙂

      A better concept would be as listed in a couple of other comments — Expenditure Tax. Whatever you buy, pay tax on it! However, on what slab should one be taxed, that’s the tricky part. 🙂


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