India’s existing Income Tax Law, no doubt, defies simplification. The need of the hour is to make the law as simple as possible. With Indian economy -- which is cruising on a trajectory of higher growth -- rapidly integrating with global economy, country’s tax laws should be in tune with the ongoing tax reforms in other fast emerging economies as well as developed countries.
For a pro-reform finance minister like P Chidambaram, who is wedded to the ideals of progress and reforms, the focus should be on making India’s tax laws simpler and transparent leaving no scope for confusion.
Any progressive Income Tax law as well as taxation policy in an emerging economy like India's should keep three factors in mind: First, the law must encourage compliance by the tax-payer. Tax laws must not be so complicated and cumbersome in their operation as to cause needless hardship to the people. In India, this objective has been wholly overlooked.
Second, the government must levy only the minimum tax which is necessary for the national good. Lord Macaulay, in the famous ‘Minute,’ which he wrote in India when he was here between 1834 and 1838, expressed the same thought when he said, “All taxes are burdensome and the burden is on the government to prove that a particular levy is justified.”
Third, the Income Tax law should focus on certainty and clarity. The laws imposing taxes must be so clearly worded that these should make the taxpayer understand what exactly is the burden he is called upon to bear.
Modern fiscal policy pursued by most progressive countries is to make revenues grow, not by increasing income tax rates but by making incomes grow and by enlarging the tax base. In other words, tax revenues must be made self-generating.
It is unfortunate that in the last 60 years, our tax laws have reached new heights of complexity. That tax administration has virtually broken down is apparent from the fact that tax returns filed are misplaced, sometimes files are untraceable, wrong debits and credits are given, notices are served for alleged tax defaults despite tax-payers paying their taxes by the due dates, and so on.
Taking full advantage of the weaknesses of the tax administration, tax defaulters thumb their noses to ensure that they are not caught. Compliance is, therefore, restricted to those few who have a sense of good citizenship and to those who have no choice but to comply with the law, as in the case of salaried employees.
The Income Tax Act, 1961 has hundreds of Sections. Some of the existing provisions are so long that they run over seven-eight printed pages. The drafting is such that virtually every provision has been the subject matter of litigation pertaining to its interpretation. Such litigation drags on for a period which is equal to one-third or more of the average life expectancy in India.
Thus the need of the hour is to make tax laws as simple and as clear as possible.
As far as tax evasion is concerned, the government must give serious thought to this social menace.
While tax evasion is a social evil, arbitrary or excessive taxation is equally reprehensible. Tax evasion aggravates arbitrary taxation; and arbitrary taxation aggravates tax evasion. To break the vicious circle, while there must be every attempt to check evasion, there must equally be every attempt to stop arbitrary taxation.
(President, All India Tax Advocates Forum. He spoke to AR Das)
TOP 10
Top ten Income Tax payers
during assessment year 2007-08
1. N Raheja Rs 16.50 cr
2. Hrithik Roshan Rs 15.10 cr
3. Shah Rukh Khan Rs 14 cr
4. Zia Mody Rs 6.75 cr
5. Akshay Kumar Rs 6.60 cr
6. Sachin Tendular Rs 5.75 cr
7. M H Mody Rs 5.45 cr
8. S Bhattacharya Rs 4.35 cr
9. Nishit Desai Rs 3.15 cr
10. Kareena Kapoor Rs 2.90 cr
