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Income Tax > A Case to abolish Income Tax

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Posted: 03-01-2011

A Case to abolish Income Tax
After the 2001 resolution of the World Tax Payers Union to get the governments abolish Income Tax and instead charge the same on any of the consumption taxes, many countries have subscribed to the view. As many as 26 countries have accepted to a flat income tax rate as a precursor to removal of the income tax. India is yet to accept even some of the basic reasons behind the actions of the other countries.
Income Tax is a negative tax in contrast to many of the other positive taxes. Income tax has been and will continue to be a deterrent for growth in any growing economy. Let us see how.

Income tax is a negative tax
Taxes have social impact. When we look at any of the taxes we need to look at what is the impact it would have on the social, economic and on the personal front.
Let us take customs duty. It is largely used by countries to deter imports and to ensure that their own industry does not suffer. Excise duties also came in to create a level playing field to every player in the market. There were also reasons such as consumption deterrents. For instance, beer tax in most countries and a large excise duty in India is a deterrent to producers and buyers of alcohol. So is the case with tobacco too.
What is the purpose of Income tax? Instead of creating a positive impact on the society it produces a negative impact. Take the case of a person who is working hard to generate more income to him. The person has to end up paying more tax as well. His hard work generates more money as income to him and he is taxed more. In other words, the government is telling him if you work hard you will have to part with more. An obvious negative connotation!

Income Tax in India
Income Tax in India has the ominous distinction of being the one that created the largest Black Money market in the world. Almost one and half times our GDP is in the black money market and is not brought into the books directly. The Government of India can certainly find a place in the Guinness records if there is a record for creating the largest Black money market!
An unacceptable level of income tax has led to the alienation of the working and the business class alike. It is not that one likes it and the other does not. Neither of them sees any fruitful use of the taxation regime introduced in the name of Income Tax. Unless there is a convincing reason for payment of Income tax, India will only see the growth of black money market in the future rather than a decrease in it. To make matters worse, there is absolutely no place coming out from the Government of India in the last two years to counter the menace of growing alternate economy.

Alternate to Income Tax
I could not see any rationale behind why there should be income tax. If there is any valid reason, I wish someone could enlighten me on it. But if mobilisation of the money for the government is the only reason, then they can do so using any of the consumption taxes. Consumption taxes, on the contrary, have the advantage of deterring usage of unfriendly and unsafe material and to encourage those that would be good for the environment and for the nation as a whole. I did a simple calculation and found that by just increasing the VAT by 2%, the government could the same amount of revenue that they are getting from the Income Tax. And to make things easier, the same sales tax department could collect the dues and the expenses incurred for the Income tax department which amounts to about INR 10,000 Crores can also be saved. The members of the department could be employed in more rewarding positions in the government.

Income Tax as it stands today has the following negatives:
1. Does not encourage people to work harder. It continues to be a deterrent for people who earn more. Therefore, it encourages, abuts and promotes unaccounted money.
2. There is hardly any contribution to the country that Income tax can claim credit to.
If the Income tax is abolished and in its place an additional charge on any of the consumption tax is laid out, then the country stands to gain the following:
1. Harassment in the name of Income Tax Collection is stopped.
2. The Black Money market is killed over night. There is no more black money everything is natural! More money in the market place, more open spending. Therefore, more sales tax, service tax and duty collections are possible. The GDP would easily double within a year.
3. By loading the income tax on to consumption tax there would not be any decrease in the tax collections at all. It would only increase.
4. Deleting the department would save a huge revenue outgo to the government.

  • bennyjs123
  • Joined:19-07-2014
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  • Location:Mumbai

Posted: 23-07-2014

It is sad that from IT there seem to be no credit for any contribution, when it is doing lots. Also i would like to think so that if IT is abolished, black money will be reduced tremendously too.
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