TARC Report – Suggestion to increase tax revenues and tax base

“Ultimately, TARC’s consultations led to the conclusion that the tax system is not only complicated, confounding and contradictory, it is also affected by corruption, inefficiency and incompetence. Even ordinary taxpayers need to hire a tax consultant for tax payment, which costs them money, and, therefore, they become willing tax avoiders. Compliance systems should be made simple and user-friendly so that more people are encouraged to pay taxes, not avoid them” is what the report says! Finally, the message has gone to the government. Is this not what all of us were telling all these days?

How to increase tax revenues and tax base?

Increase number of taxpayers

• The number of companies registered as per Registrar of Companies (ROC) data is more than the number of companies filing IT return. Track the non-filers (Note: The companies not filing IT return may be tracked in the coming years)

• Only 33% of people who have registered under service tax are filing returns. Track the non-filers. (Note: Registered under service tax but not filing returns? You can expect ‘brown cover’ soon)

• Only 50% of people who have registered under central excise are filing returns. Track non-filers

• The compliance system should be made simple and more user friendly to encourage voluntary compliance, thereby broadening the tax base (how?)

• TDS coverage should be expanded (Note: many more transactions may attract TDS provisions)

Re-introduce Fringe Benefit Tax (FBT) – The perquisites offered to the employees are not adequately taxed and hence, bring back FBT

Banking cash transaction Tax (BCTT) – It was introduced in 2005 and withdrawn in 2009. BCTT to be reintroduced for all cash withdrawals in a day exceeding Rs.50000 in case of individuals and Rs.100000 in case of companies, firms, etc. This tax will help to identify the transactions of unaccounted money (black money). There is no instrument at present to capture details of cash withdrawals from bank accounts, except saving bank account.

Presumptive Taxation – Increase the base of presumptive taxation and extend to service tax also. At present, only income tax act provides for presumptive taxation scheme.

Tax on agriculture income – Large farmers having large income such as Rs.50 Lakhs or so can be taxed. (Note: taxing agriculture is a state subject. Can Central government levy tax on agriculture? Note sure. Secondly, will the government take this step?)

Cash Economy

• In case of property transactions, a close scrutiny to be done. The state governments should increase guidance value to match the market value. So, that cash transactions in real estate business will come down.

• All property transactions to be mandatory made to quote PAN ( or Common business identification number CBIN). (CBIN is something new, may be more registration to be done!)

Wealth Tax

• Increase the base by including financial assets (means Mutual Fund, Equity, bank deposits to be brought under wealth tax; currently they are excluded)
• Scrutinize the affairs of High Net Worth Individuals (means more drilling by the department)

Phase-out exemptions – Don’t give any unwarranted exemptions under tax laws

Survey, Search and Seizure – Bring out integrated efforts by both direct and indirect tax department (means more trouble is ahead – if both the department comes together for survey)

Tax amnesty – should not be given (means no more Voluntary Disclosure scheme – VDSS type)

Let’s wait and see how much our government will consume these ideas!

Thought for the day

Intellectuals can debate. Idiots just argue

Also read Interesting facts revealed in Tax Administration Reforms Committee Report – PART A

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