Direct Tax Reforms

The Narendra Modi government embarks on direct tax reforms. It will consider all issues comprehensively. However, a few of them deserve attention from a consumer’s perspective.

There should be no need for individual income tax, if indirect taxes can fill the bill. It is a great burden on the exchequer to maintain a huge tax establishment to process tax returns. The saving on this account would prove more than matching savings.

Consider the minimum expenditure for a normal family consisting of husband, wife and 2 children. A minimum income of Rs 2 lakh per month is the requirement. If a 3 room flat of the average quality costs anything from Rs 95 lakh onwards, school fee of Rs 2 lakh per child and household expenses and medical insurance and other sundry expenses extra, an income of 2 lakh per month would look meagre.

Higher income in the hands of individuals again guarantees higher consumption.

Higher consumption means increased production.

Increase in production creates more jobs.

Increase in incomes, production, consumption and employment means higher GDP and a shining economy.

If India seeks to become an economic superpower, it has to decide whether it is for poverty or prosperity.

The direct tax policy of India is solely responsible for poverty in India, which is responsible for corruption, which results in crimes.

The original tax code was the product of an alien ruler, who wanted to extract the maximum from the Indians, leaving only as much for them to survive at subsistence level.

That policy made the masses poor as everybody had to borrow at usurious rates (refer to Premchand’s famous story “Sava Ser Genhu”). The farmer, worker, artisan, common man simply became indebted. That scourge is afflicting them even today if hundreds of suicides of farmers almost throughout India is any indication. The centuries of poverty caused by the direct tax regime of the foreign rulers is at the root of all their misery.

It has been further aggravated after Independence by a totally inappropriate pursuit of socialism. Indian socialism led to shortages, rationing, black marketing, licensing, inspector raj, corruption, welfare schemes, ubiquitous corruption, political upheavals, hollow sloganeering like Garibi Hatao (Remove poverty), failure of constitutional scheme of governance (Horse Trading, Ayaa Ram Gayaa Ram, Revolving Door Policy for MPs & MLAs), loss of ideologies, stressed economy and ever-increasing poverty. Our poets have glorified poverty as if it is the biggest achievement in life. Unless these failures are meant to be continued, India has to modify its socialism. That socialism is contained in a simple phrase: Ram Rajya.

What do the rich do with their wealth? The answer is philanthropy.

Concepts of charity have guided societies in most countries for centuries. In India, people are inherently charity oriented, religious and helpful to their fellow citizens. India’s biggest strength has been its Joint Family System, which means an extended family. It has many advantages and economic advantage is one of them. Incomes are pooled and expenditures shared. Need of every family member is taken care of. Parents are well looked after. Social obligations are discharged timely. Acts of charity are done routinely. But modern living and urbanization has brought about change in this system. Still, higher incomes in the hands of some members is a great source of informal financial resources and a sense of security.

The Direct Tax Code now being visualized ought to take into consideration these points and abolish individual income tax completely. Most Indians earn less than 6,00,000 annually (Income Ceiling for benefits to SC/ST/OBC). A large number make do with no more than Rs 10,000 per month. A huge population is considered above the poverty line if the daily earning of a household is between Rs 28 and 35 in rural and urban areas respectively. It leaves those BPL (Below Poverty Line), who have no income.

When those with expendable income in hand consume more goods or services, these people rise above the BPL status in no time on their own without welfare doles from the state.

They are left to starve by the income earning class because they can’t help everyone even if they want to. The reversal of this scenario will happen if the employers seek workers instead of the current hopeless scenario of the workers seeking employers.

If we are fixated to foreign economic thinkers and their economic theories, we are going to only prolong poverty in India. We have to think anew for ourselves and draw inspiration and ideas from the concept of Ram Rajya, Mahatma Gandhi and the strong Joint Family System. We need to make everybody an income earner rather than recipient of government doles of free ration, free house, free toilet, free gas connection, free education or free medical treatment.

If highly educated, trained and experienced people like managers, bankers, accountants, auditors, engineers, doctors, academicians, scientists, bureaucrats and skilled workers are left with adequate funds in their hands, they can try their entrepreneurial skills and contribute to the GDP significantly.

Presently, they are being wasted. Each one of these personnel has the high value asset of education and costly training, which s/he has honed during the period of employment. They can contribute to research and development, which is getting ignored at huge cost to the country. This pool of talent can produce brands, patents, trademarks and other IPRs/TRIPR assets for the nation.

The direct tax policy should be a tool of all round growth and development and no disincentive as at present to innovation, initiative, invention, discovery and novelty. If drawn after in-depth consideration, it can guide the nation to move from poverty to prosperity in the next 15 years. A transparent government can deliver results on this count.


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