Ad Here  
August
September
October
November
December
January
 
 
Miles to go... Sowing seeds of hope A gratifying record The deluge and the several kindly souls Focus on southern TN... Much ado about nothing Little surplus after salaries, subsidies and debt servicing Research for survival... Tax evaders’ get out of Jail-Free Card Need for radical RBI reform You too T M Krishna? Low profile moves Chennai Airport-Ready for a rapid take off... Public investments and welfare will surge INDIA keeps its date with destiny Need plan over the long term planning Babes In the wood-RBI North block has little clue to curb inflation Make way for Make in India... Weaving wealth of western Tamil Nadu Oh my GOLD Welcome rains for damaged roads... A blueprint for the future After all, customer is the king When the examiner cheated... South India’s 100 most valuable companies Well-administered State An eco-friendly commute in Mysuru 1800 parties registered with EC – Less than 60 contest elections Babes In the wood-RBI North block has little clue to curb inflation Economy through the month A dual GST that will protect prosperous states Why (not) abolish? An eventful week with VVIPs of Delhi Indian GST – Between extremes… Welcome Measures. Work for 10X Change Technology and economic development should be linked In the horns of a dilemma Tryst with GST A historic indirect tax reform Policy Makers Reform this licence to…kill Strategic planning the missing link CAD and the emergency thereof Sardar Sarovar – the seventy year itch Why throw baby with bath water? Star of the South Jobs - Lost, Changed or Gained Trail-blazing Tamil Nadu A tale of two Bihar babus CSR, tech revolution and bank crisis How will it PAN OUT Sustainably developing manufacturing sector… Breaking news or breaking credibility? If not Tamil Nadu, where else? MS Installed Pool energy prices The Great Fall What the big B should offer? Two welcome measures from the chief minister... Skewed Economic Zones? A Fine division of responsibilities PC please be our Santa It’s raining funds for states. Really? Better relations with UK... Deming awardees galore! No groundnuts in groundnut oil! BJP can now hasten its thrust for reforms Outward ho TN - so much to offer... They add lustre to Padma Awards Cleansing Indian retail Welcome move to widen the tax net… Kudos to GIM organisers... Ganesh’s mantras Rail-road Rajaraman Much can be done by us Focus on agriculture and human resources Healthy finances of the Chennai Corporation Land, land everywhere, but... Industry can’t get it from Mars, yet Truce at Kasturi Buildings Wanted: decentralised financial system
 
Why (not) abolish?
“If I am a part of the government, I could do it in seven days. Since I am outside, I will abolish income tax entirely over the next three years.”

One could be pardoned for being puzzled. In what way would this increase the welfare of the people? Why should the Income tax, which presumably falls more heavily on the wealthy than the poor, be abolished?

Why Swamy is right 

Though it is based on the principle of ‘ability to pay,’ high-income taxes take money away from precisely those sections of the populace that earn and save the most. As such, a high rate of income tax becomes a tax on success, according to Austrian economist Ludwig von Mises. 

Writes economist Arvind Virmani: abolition of income tax would extinguish the difference between ‘white’ income, (that is income which has suffered tax) and ‘black’ income, which has not. It will level the playing field between honest and dishonest taxpayers. Since there will be no tax, those who manage to evade taxes, usually with the collusion of a corrupt bureaucracy and the powers that be, will not be able to amass wealth illegally. People will happily find avenues of becoming rich honestly. Similarly, the efficiency of trade and investments will improve. Additionally, people would be encouraged to move investments from unproductive stakes in gold and real estate into productive enterprises. The terror of the rapacious taxman would be at an end.

These are the most important reasons why income tax must be abolished.

Figures to figure

In India, total tax receipts were Rs.15.5 lakh crore in 2015-16. Income taxes along with corporate taxes doubled to about 7.5 lakh crore in 2015-16 from 2009-10. Of this income tax accounted for Rs.3.0 lakh crore while corporate taxes pulled in Rs.4.5 lakh crore. In 2009-10, direct taxes formed 61 per cent of the taxes collected while this has dropped to 51 per cent in 2015-16. The share of direct taxes to GDP was 6.3 per cent in 2009-10 while sliding to 5.4 per cent in 2015-16.

The primary data shows that of 1.25 billion population only 2.5 per cent filed income tax returns and 62.5 per cent of them filed nil returns. 56 per cent of individuals paid no tax, while 39 per cent paid 21 per cent of the taxes on individuals. The balance 5 per cent paid 79 per cent of taxes. Just a little over one per cent of the population paid income tax. 

Why Swamy is wrong 

Given that the current year’s budget has forecast a deficit of 3.9 per cent, according to protax economists, any abolition of income tax, even if only for individuals is likely to blow a big hole in the budget. 

Several economists point out that when in 1997 tax rates were slashed to a maximum of 30 per cent, tax revenues went up. Another compelling argument is that since any tax cut would put more money in the hands of the people,  increased spending would even things out in the medium term as revenues from indirect and other taxes surge. Cutting taxes then would be a recipe for growth rather than a fiscal disaster. Anyway, prudence would dictate that tax cuts while welcome must be accompanied by spending cuts to keep budget dynamics under control.

The downside of abolishing income tax is that if personal income tax alone is eliminated while corporate tax continues, it will incentivise people to move away from the company form of business organisation. Eliminating income tax would also increase economic inequality even if in theory this would be only for a  few years. 

On the whole, Virmani says a simple ‘no’ to the idea of abolishing the income tax.  On the other hand, Swamy says: “the rich know how to avoid tax and the poor are not in the tax bracket. It is the middle class, young professionals, salaried employees who pay tax.” 

Clearly, it is the salaried folks that have to bear the brunt of this tax. Is this then a just system?

What’s the verdict

The answer probably lies somewhere in between, encompassing an increase in the exemption limit, stretching tax slabs, while minimising tax rules to save honest taxpayers from being harassed. 

Author :
Reported On :
Sector :
Shoulder :
RELATED NEWS
ABOUT IE
IE, the business magazine from south was launched in 1968 and pioneered business journalism in south. Through the 45 years IE has been focusing on well-presented and well-researched articles. When giants in the industry stumbled to keep pace with the digital revolution, IE stayed affixed embracing technology.
Read more
 
PRIVACY POLICY
Economist Communications Ltd is committed to ensuring that your privacy is protected.
Read more
TERMS AND CONDITIONS
You agree that your use of this Website and the purchase of the magazine will be governed by these terms and conditions.
Read more
 
CONTACT US
S-15, Industrial Estate,
Guindy,
Chennai - 600 032.
PHONE: +91 44 22501236
EMAIL: indecom1968@gmail.com