Complicated tax-system in India with six-decades old Income Tax Act 1961 with too many amendments in form of lot of confusing patch-works is in force. Likewise, ever since a reformative step of introducing Goods & Service Tax (GST) Act was introduced from 1st July 2017, there has been a regular practice of changing tax-structure in ever-confusing GST regime with too many confusing and complicated provisions incorporated in the system.
An altogether new tax-regime should be introduced without patches of useless and largely misused exemptions. Implementation of Raja Chelliah Committee recommendations to fix highest tax-slab at 30-percent to be in tune with most countries in the world, had largely abolished practice of converting black money into white money. Gradually increasing this highest slab also through imposing cess and surcharges has undone the good achieved. Highest tax-slab of 30-percent should be restored so that people may find it advantageous to bring complete income to books. Rather a permanent Voluntary Disclosure Scheme should be introduced whereby provision may be there in tax-return to declare at highest suggested tax-rate of 30-percent, any income without disclosing source of income. This will make cash-transaction specially in property-deals accounted if registration-fees on property-deals is also reduced to say just three-percent. Names of all those disclosing incomes under suggested highest 30-percent slab should be on website according to income disclosed so that status-conscious persons may race to disclose more incomes.
Basix tax exemption should be fixed at rupees five lakhs abolishing most tax-exemptions including on charity, donation, contribution to political parties and even agricultural-income which are largely misused. An ordinary farmer does not earn more than rupees five lakhs per annum, and the provision is grossly misused by ultra-rich persons including known celebrities to declare their unaccounted income as agricultural income through some village-land purchased only for the purpose without practically having any agricultural produce. Income Tax slabs can then be 10 and 20 percent for incomes between 5-10 lakhs and 10-15 lakhs respectively and thereafter 30-percent for rest. LK Jha committee recommendations to make calendar-year as financial-year should be implemented to be in line with most countries of the world, thus abolishing another British legacy of following April-March presently as Fiscal Year. It is ridiculous to have different Depreciation-Rules for Tax and Corporate audits. There should be a single and unified Tax and Corporate Audit.
Rather than concentrating more on small cash-transactions, all sale-purchases above rupees 10000 must be compulsorily through bank-transactions. For this, transaction-charges on credit-cards should be slashed down to just half-percent (GST-exempted) that too to be borne by central government with all incentives on purchases made through credit-cards abolished. Present high two-percent transaction-charges on credit-cards make traders charge it separately from customers specially where trade-margins are low. Such a system will fetch much higher tax-revenue for government, than through half-percent transaction-charges to be borne by government. Banks issuing credit-cards will get much-more earning even with half-percent transaction-charge because of manifold use of credit-cards. Two sets of credit-card swapping-machines should be compulsory for every GST-registered dealer dealing also in cash so as to avoid payment-receipt through credit-cards with usual excuse that swapping-machine is out of order. Strict-most action must be there against those refusing payment through credit/debit cards.
Input-Tax-Credit system in GST-regime in manufacturing-sector is biggest corrupt practice of tax-evasion where left-out GST-invoices by ordinary customers are sold by traders to consuming manufacturers or producers to avail false Input-Tax-Credit where cash is paid back by traders to those purchasing left-out GST-invoices of actual consumers bringing more currency in circulation, this being the reason of basic motive of currency-demonetisation being failed where currency in circulation rapidly increased rather than projected decrease. Annual forensic audit may be made compulsory on claims made for Input-Tax-Credit by manufacturers/producers to avoid false claims of excessive Input-Tax-Credit in these sectors. Rather study should be made if with abolition of an excessively high 18-percent GST slab, Input-Tax-Credit can be altogether abolished from manufacturing/producing sectors, retaining it only on tradable commodities.
But such reform in Input-Tax-Credit system can be practically possible with drastic reform in GST tax-structure wherein initially only three tax-slabs of 6, 12 and 30 percent may be there abolishing all presently existing GST-rates. India is the only country which has so many GST-rates. Gradually even slabs of 6 and 12 percent may also be replaced by a new 10-percent tax-structure. Zero-percent GST may only be retained on totally unbranded raw-materials which cannot be consumed without giving a finishing touch like agricultural-products, fish, meat, cotton-yarn etc. All items of long-term use like cars, air-conditioners, TV-sets, refrigerators etc may attract 30-percent GST while their parts may uniformly attract 12-percent GST. Unmindful policy-framers brought clutch-plate and clutch-bearing under different GST-slabs of 18 and 28 percent. Likewise similar items sold by confectioners like sweets, biscuits, namkins etc attract different GST-slabs with luxury sweets causing diabetes attract just 5-percent GST.
Invoices for items like gold-jewellery can be drawn in two parts, one for metal and embodied items and the other for making-charges so that suggested 12-percent GST may be payable only on making-charges. Cess on extra-luxurious items should be replaced by additional GST-slabs in multiples of 60-percent, also bringing petroleum products under GST-regime to ensure uniform pricing of petrol and diesel in all states. Abolishing 18-percent GST-slab will be more than compensated by clubbing lower slabs of 3 and 5 percent into single 6-percent GST-slab. Input-Tax-Credit (ITC) system should not be applicable on non-tradable commodities and services like has been done, and rightly too, in case of car-expenses for non-commercial use.
With GST-slab of 18-percent abolished and service sector then attracting just 12-percent GST, those with income of rupees ten lakhs or more (instead of present rupees 20 lakhs) can be brought under GST-regime like was the system before GST-regime. It is totally illogical to keep lawyers out of purview of GST-regime. Useless system of Tax-Deducted-At-Source for GST, which is hardly used in practice, should be altogether abolished. Or otherwise, any such deducted tax should be auto-reflected in GST-accounts of affected ones, abolishing cumbersome practice of filing a new monthly return to get credit of deducted GST.
All government-payments can be considered to be exempted from GST to avoid unnecessary government-accounting by putting tax from one government-pocket to other. It is illogical that some premium postal-services like Speed-Post may attract GST while other postal-services do not attract GST. Even illogical and irrational postal-rates (both inland and foreign) need simplification for equal rise of postal-tariff for equal rise in slab-weight in multiples of 50 gms. of inland postal-article with all postal-tariffs being in multiples of rupees ten except for registered-newspapers and post-cards which may cost rupee one with abolition of outdated Inland-Letter-Cards. Presently a postal-article weighing 200 gms sent locally by reliable and fast Speed Post costs just rupees 30 but if sent by unreliable ordinary post, it will cost rupees 50. Likewise foreign-mail tariffs can be fixed for 20 gms or part slab-weight independently for air and sea-surface-mail.
