New Fiscal Approach Needed For Govt. Revenue Collection

Through the proposed DTC / GST legislations, the Government has acknowledged the need of revamping existing revenue system but the proposed new laws appear to be even more intricate and complex then the present one.     

To move forward the economic reforms programme of the Government, we need to shred the unwanted weight in the revenue legislation and provide for a very simple well crafted Consolidated Revenue Act. The simplicity will improve the understanding, compliance and also enhance the quantum of tax collections many folds.          

I am proposing a system in this presentation, which can make it possible to replace the thousands of pages of Indian Revenue Acts into one single Consolidated Revenue Act of just one hundred pages.

The Consolidated Revenue Act can be drafted on the followings lines.

1.         Consolidation of Old Revenue Acts

Income Tax, Wealth Tax, Service Tax, Security Transaction Tax, Dividend Distribution Tax, Excise, Customs Acts etc. can be consolidated in one single act on the following lines. The new act can be named “The Consolidated Revenue Act of India”.

2.         Components - The Consolidated Revenue Act of India

The “Consolidate Revenue Act of India” will consist of following chapters such as Direct Tax (Income and Wealth), Central  Excise, Custom, Service Tax and Common Provisions.

3. The Salient Features – The main provisions of each of the chapter can be highlighted as follows.

3 A.     Direct Taxation

3 A 1.  Basic Income Tax exemption for all the individual assesses should be Rs. 3, 00,000/- and for all others assesses Rs. 1, 00,000/-

3 A 2.  The nature of income will not be classified / discriminated. e.g. salary, interest, business income, capital gain etc. Income is a income irrespective of its source of generation (source is irrelevant).

3 A 3.  All individuals to pay tax @ 15.00 % of the income over first Rs. 3,00,000/-.  No slabs, no deductions, no exemptions, no incentives and no allowances .No distinction in the nature and source of income.

3 A 4.  Other then individuals, all other resident assesses to pay tax @ 20.00% of the income. All non - residents and institutions with foreign ownership of more then 25% to pay tax @ 30%.

3 A 5.  Accounting Year should be calendar year to globalize the economic system.

3 A 6.  Advance tax to be paid at the end of each quarter. Installments to be equally divided. Difference if any at the end of the year, allowed to be deposited before the filing of Income Tax Return subject to the condition that, the difference will not exceed 20% of the total tax payment.

3 A 7.  Accounts should be prepared for tax purpose only on cash basis (not on accrual basis). This will reduce accounting manipulations. Except business income no other income will be allowed any kind of deductions.

3 A 8.  A uniform depreciation rate of 10% will be applicable for all the assets. All assesses will use straight line method only. Classification of assets will not be required for the purpose of depreciation.

3 A 9.  The business losses will not be allowed to be carry forward / set off. The carry forward and set off results into complications and manipulations.

3 A 10. All tax returns to be filed on or before 31st March as the accounting year ends on 31st December.

3 A 11. All assessments should be completed within one year from the date of receipt of the returns.

3 A 12.   All returns to carry a statement of income, assets & liabilities.

3 A 13. The returns should be selected for verification using only random computer picking method. Department must verify at least 10% cases rigorously. Assessing officer should conduct at least a part of the assessment proceedings at the premises of assesses.

3 A 14. All returns to be certified by Chartered Accountants. They should not only draft the returns but also verify the facts and figures given in the statements.

3 A 15. Verifications (Scrutiny) of Income Tax Returns should be conducted on the basis of standardised questionnaire valid for the entire country. Questionnaire should be dexterously drafted so that all facts are cross checked in questionnaire itself automatically.

3 A 16. All assessment orders should be signed by three officers i.e. Joint Commissioner Income Tax, Assessing Officer and an Inspector.

3 A 17. The dissatisfied Assesses should be allowed only one appeal against the order of the department to an Appellate Authority (Bench of 11 members). Order of Appellate Authority should not be further appealable. Appellate Tribunals should be setup in reasonable numbers. Members of tribunal should be nominated by professional bodies and the Government. All appeals should be settled in maximum three hearings or a period of six months from the date of the filing of the appeal.

3 A 18. Incase of default / delay in payment of tax on time, assesses should be charged interest @ 36%.

3 A 19. In case the Appellate Authority discovers willful negligence or tax evasion assesses should also be subject to prosecution (imprisonment) of minimum one week to three years.

3 A 20. Chartered Accountants certifying returns / Balance Sheet should also be accountable to their work directly. If they are noticed to be guilty of professional misconduct, negligence, they should also be subject to strict action including permanent cancellation of their recognition / certificate of practice.

3 A 21. All Government executives should declare their family assets as on 31st December every year. A separate authority should be created to check these statements on random basis. The definition of family should include assets owned as an individual, as member of HUF, Assets controlled as trustees and assets of dependent family members etc.

3 A 22. Farmers and agricultural companies earning agricultural income in excess of Rs. 4, 00,000 should also be subject to all taxes like any other entity.

3 A 23. TDS should be deducted at the flat rate of 10% from payments like salaries, interest, rent, winnings, dividends etc.

3 A 24. Any individual living outside the country for more than 180 days in a calendar year should be treated as Non-Resident Indian. All others are Residents.

3 A 25. Income earned by non - resident outside India not to be taxed in India irrespective of the duration of their stay in India. All residents will be subject to tax on their foreign income, subject to double taxation agreements with individual nations.

3 A 26. Capital gains should be taxed like any other income. Capital gain should be calculated on the basis of net sale price less net purchase / acquisition price. If the asset sold, was not purchased by the seller, the entire sale price to be treated as income.

3 A 27. Dividend income should be taxed as any other income.

3 A 28. Non-filing / Late filing of returns to attract minimum fine of Rs. 5000/- or 50% of tax and interest due whichever is more.

3 A 29. All kinds of donations to be allowed as business expenditure subject to maximum 5% of the taxable income.

3 A 30. All money gifts to be treated as normal income. All marriage gifts to be taxed as normal income irrespective of donor. Gifts in kind in excess of Rs. 50,000/- to be taxed as normal income.

3 A 31. Wealth tax to be charged at 1.00% of net wealth in excess of Rs. 2,00,00,000/-. The wealth means only land without building, unutilized real estate, jewellary and cash. Rest of all assets should be exempted.  The logic behind taxation of wealth should be discouraging the people from investing in unproductive assets.

3 A 32. Estate duty should be charged @ 5.00% of net wealth inherited if it exceeds Rs. 5,00,00,000/-.

3 A 33. Raids & Surveys should only be undertaken in unavoidable circumstances with the specific permission of Chief Commissioners & Chairman CBDT. Officers recommending raid proposals should be accountable. Details of Raids / Surveys conducted and their final results should be placed in the Parliament.

3 A 34. Anyone in possession of cash in excess of Rs. 10,00,000 without proper explanation should also be subject of police action and enquiry also.

3 A 35. One individual should be allowed to open maximum two bank accounts in one city.

3 B Other Taxes.

3 B 1. Excise Duty, Custom Duty and Service Tax should be charged @ 8% of the turnover / value of services, where annual sale is in excess of Rs. 1,00,000,000/- or the value of services rendered is in excess of 25,00,000/-. No exceptions & no exemptions, no classifications. Every business should fall in one of the category.

3 B 2. MODVAT credit to be allowed.

3 B 3 Provisions regarding assessment, interest, appeal, etc. can be common and same as applicable to direct taxes.

4. Old Assets Declaration Scheme

Indian infrastructure development projects need gigantic funds which can neither be generated through tax collections or borrowings. It is a well known secret that, Indian economy has a parallel economy flooded with enormous wealth generated through dubious means and methods. In past the governments made attempts to legalise these funds but not even a fraction of the total amount could be realized. Through this single source of funding, enormous financial resources can be raised for all the financial and infrastructural needs of the country.

The Government should offer a Scheme for introduction of capital in specific sectors. The scheme unlike past should be open for a longer period of time, may be 3 to 5 years. Larger duration of the scheme will help the entrepreneurs in planning and execution of projects. The scheme may provide total immunity from penalties and prosecution if the declarant pays a tax of 20% and remaining declared assets are invested for the development of Infrastructure e.g. Education, Health Services, power generation, transport, communication and Family Planning etc. This will also facilitate the transfer of Indian funds parked outside the country. The scheme should be unconditionally apply to all irrespective of their class. Although, proposing these schemes again and again is painful, but in the overall interest, we have to make certain compromises with the policies. If we want development faster than China, we hardly have any choice

5. General Provisions.

5. A.  Cheque Bouncing should be treated as a criminal offence. Punishment u/s 138 is not sufficient. More strict & enforceable law required.

5. B. Individual loan defaulters and all directors of defaulting companies should be blacklisted and their names be published on 1st January every year in the national newspapers and on the government website. Passport of all such persons should be confiscated. No further loans to be granted. Action under any other law also possible. Withdrawal of voting right etc.

5. C.   A special status should be given to all citizens who have achieved exceptional success in their business or profession. The criteria of selection could be anyone of the following:

5 C 1.   Chairman of the company employing more than 10,000 persons.

5 C 2.   Capital employment of more than 5,000 cr.

5 C 3.   Corporate income tax contribution of more than 500 cr.

5 C 4.  Corporate excise duty / customs payment of more than 500 cr.

5 C 5.   Individual tax contribution of more than 10 cr.

5 C 6.   Corporate Exporting more than 5,000 cr.

5 C 7.   Corporate Imports more than 10,000 cr.

5 C 8.   Turnover more than 50,000 cr.

5 D.     Special Status Scheme should entitle the person for the following privileges:

5 D 1.  Business award by the President

5 D 2.   Diplomatic Status for the Chairman of such corporate

5 D 3.   Free Personal Security by Government

5 D 4.   Central Cabinet Member Status

5 D 5.   Blue Light Vehicle.

5 D 6.   Etc.

If the revenue system can be formatted on the above mentioned lines, India will have the most transparent and efficient revenue collection machinery working without any kind of policing, coercion, compulsion. It may inspire many other national economies to adopt a similar system.

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Author: A. K. Jain, 21 Skipper House, 9, Pusa Road, New Delhi - 110 005, India

Mobile 98-100-46108, E- Mail: caindia@hotmail.com

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