Tax free India , is it feasible ?
(Prologue:- Modern economy is very complex ,I do not claim to have Phd in it , but as a well informed citizen , i am giving my view)
Recently BJP have initiated a new debate on making India Tax free claiming that many country have implemented it and India can also do the same. At this point we need to ask some basic questions .Which are the countries? What are the fundamentals of their economy ?will It suit to India ? Why BJP have taken this stand Dec-2013 onward and not tried to implement during period when it was in power or pushed this idea when it was in opposition 2004 onward ?
Before answering above question we must know logic behind tax. In India general people are taxed at two level one at level of income/earning(direct) and another at level of consumption(indirect) . only few people who are earning above some threshold value are taxed at income with differential rate for different slab whereas everybody who is consuming anything or availing any services are taxed. For instance people are taxed on matchbox ,medicine, food, fuel , wine etc. Basically the wisdom behind this approach is - rich people consume more so they will pay more tax than poor people. This system is called as progressive taxation system. What ever the Govt earn with these tax is spend upon Defence,maintain law and order, building infrastructure, welfare of people , upliftment of poor and last man of line . Agriculture , unorganized sector do not fall in tax net in this system.
Coming back to questions . There are near about 15 countries which are tax free, most of them are very small countries with tourism or petroleum export as major business.Only Saudi Arabia is a major economy among them. Saudi earn 40% of their revenue from petroleum export.Citizen of Saudi pay 2.5% religious tax mandated by Islamic law rather than traditional income or corporate taxes.From these two source Saudi generates enough revenue look after expenses of its state machinery and welfare of people.
Looking at India we find that we spend our nearly 40% of our revenue earned from export on importing petroleum In 2011-12 , the figure was astonishing high over 53%. So , if we will stop taxing we will left with no money to take care of our expenses. India is a country with vast socio-economic inequality we have to protect the weakest section of society and spend on their upliftment. At a time when expenditure on education, heath care is very low and we have increase it in order to raise people standard of living ,we need more revenue.
Their is hue and cry among taxpayer's that why should only a minority of people i.e 3% should be taxed. I agree that tax net should be increased and more people should be brought in tax net , but abolishing it , is not a solution . the people who are earning so much that they are able to pay tax must now that society and state have contributed immensely for their development so that they can earn what they are earning. So it the duty of these people to pay back the society , so that other people can also be facilitated with same opportunity which they had.
As a alternative , it is suggested that we introduce transaction tax in order to compensate the loss of revenue. But we must know the fact that very less people transact by bank . Most of people in India deal in cash. India is basically a cash driven economy. Then how can we tax on transaction? so this is also not a feasible alternative.
Given the condition , it sound more like political gimmick rather than any realistic agenda. BJP ,with its voter base in urban constituency , want to capitalize the anger of people who pay income tax . BJP is wise enough to understands that they are losing urban middle class vote at hand of AAP . So they want to gain attention of voters with such gimmick. If they really care for it why they have not taught of it when they were in power or pushed it for discussion in parliament when they were in opposition ? It is only after AAP moral win in Delhi assembly election , they started talking of it in second half of Dec 2103 .
A gradual reform toward increasing tax base , Introducing and implementing GST ,and other such measure can really help India rather than such gimmick.
(Prologue:- Modern economy is very complex ,I do not claim to have Phd in it , but as a well informed citizen , i am giving my view)
Recently BJP have initiated a new debate on making India Tax free claiming that many country have implemented it and India can also do the same. At this point we need to ask some basic questions .Which are the countries? What are the fundamentals of their economy ?will It suit to India ? Why BJP have taken this stand Dec-2013 onward and not tried to implement during period when it was in power or pushed this idea when it was in opposition 2004 onward ?
Before answering above question we must know logic behind tax. In India general people are taxed at two level one at level of income/earning(direct) and another at level of consumption(indirect) . only few people who are earning above some threshold value are taxed at income with differential rate for different slab whereas everybody who is consuming anything or availing any services are taxed. For instance people are taxed on matchbox ,medicine, food, fuel , wine etc. Basically the wisdom behind this approach is - rich people consume more so they will pay more tax than poor people. This system is called as progressive taxation system. What ever the Govt earn with these tax is spend upon Defence,maintain law and order, building infrastructure, welfare of people , upliftment of poor and last man of line . Agriculture , unorganized sector do not fall in tax net in this system.
Coming back to questions . There are near about 15 countries which are tax free, most of them are very small countries with tourism or petroleum export as major business.Only Saudi Arabia is a major economy among them. Saudi earn 40% of their revenue from petroleum export.Citizen of Saudi pay 2.5% religious tax mandated by Islamic law rather than traditional income or corporate taxes.From these two source Saudi generates enough revenue look after expenses of its state machinery and welfare of people.
Looking at India we find that we spend our nearly 40% of our revenue earned from export on importing petroleum In 2011-12 , the figure was astonishing high over 53%. So , if we will stop taxing we will left with no money to take care of our expenses. India is a country with vast socio-economic inequality we have to protect the weakest section of society and spend on their upliftment. At a time when expenditure on education, heath care is very low and we have increase it in order to raise people standard of living ,we need more revenue.
Their is hue and cry among taxpayer's that why should only a minority of people i.e 3% should be taxed. I agree that tax net should be increased and more people should be brought in tax net , but abolishing it , is not a solution . the people who are earning so much that they are able to pay tax must now that society and state have contributed immensely for their development so that they can earn what they are earning. So it the duty of these people to pay back the society , so that other people can also be facilitated with same opportunity which they had.
As a alternative , it is suggested that we introduce transaction tax in order to compensate the loss of revenue. But we must know the fact that very less people transact by bank . Most of people in India deal in cash. India is basically a cash driven economy. Then how can we tax on transaction? so this is also not a feasible alternative.
Given the condition , it sound more like political gimmick rather than any realistic agenda. BJP ,with its voter base in urban constituency , want to capitalize the anger of people who pay income tax . BJP is wise enough to understands that they are losing urban middle class vote at hand of AAP . So they want to gain attention of voters with such gimmick. If they really care for it why they have not taught of it when they were in power or pushed it for discussion in parliament when they were in opposition ? It is only after AAP moral win in Delhi assembly election , they started talking of it in second half of Dec 2103 .
A gradual reform toward increasing tax base , Introducing and implementing GST ,and other such measure can really help India rather than such gimmick.
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