Should Personal Tax (On Individuals) be abolished to bring Indian Economy back on Track?
In any Developing economy Personal Taxation plays a very vital role. The funds collected from this source are used by Government for a variety of Purposes which Includes Public Infrastructure, Welfare Schemes, Scientific research, Defence, Law Enforcement and Activities relating to General Public Utility such as Energy, Water and Waste Management etc.
Personal Taxation in Indian Scenario:
In the Assessment year 2018-19 (Latest data released by CBDT), a sum of rupees 3.2 Lac Crores were collected as Personal Taxation from 5.53 Crores Assessees which accounts for around 2% of India’s GDP.
Abolishment of Personal Tax will not impact much on Government revenue. Abolishment of Personal Taxation will leave more cash in the hand of citizens and will thereby boost their purchasing power. The more purchasing power they will have the more they will consume and simultaneously demand will raise. In order to fulfill the increased demand, the business houses will raise supply (by utilizing their excess capacity). The more supply will result in more revenue and profits and simultaneously more corporate tax. Apart from this the ultimate consumer will also pay Indirect tax.
It has been seen in recent past that Government in order to aid corporate houses are shifting burden on Individuals which is devastating for the economy. Individuals are the ultimate consumers and Increasing or reducing demand is actually in their hands. If they are not having money in their hands, how will they raise demand for products? In the recent past we have witnessed economic slowdown and the main reason for economic slowdown is “less demand”.
In the wake of COVID-19 Pandemic, Honorable Union Minister of Finance & Corporate affairs Smt. Nirmala Sitharaman ji announced a relief package naming Aatma Nirbhar Bharat Package. In the said package focus was placed on reviving Indian economy by focusing on:
1. MSME Sector
2. Collateral Free Loan Distribution
3. Reduction in TDS/TCS Liability
4. Focusing on Public-Private Partnership & other factors
Inducing Liquidity by reducing TDS/TCS Liability may not be helpful in reviving economy, as in order to meet their estimated tax liability tax payers will have to pay advance tax. Interest Provisions are also there (234C & 234B).
1. This will aid in Boosting demand within the country and will thereby boost Indian Economy.
2. There will be no or less revenue loss for Government as it is just like changing the nature of Taxation (Direct to Indirect).
3. Reduction in Compliance cost for Government and better focus on Productive work.
4. Reduce Burden from over-burdened Income Tax Authorities.
5. It will aid in reducing some unemployment as the business houses may employ more employees in order to utilize their excess capacity.
6. Considering the increased demands more FDI will flow to the country.
Disadvantages of Abolishing Personal Taxation:
1. The one who shall have negligible role in raising demand may also be left untaxed (Non Residents).
2. DTAA Agreements may also have to be revised.
3. It will result in loss of revenue for Tax Professionals, mainly Chartered Accountants.
After considering the above mentioned facts it can be concluded that complete abolishment should not be made. Government may increase basic exemption limit to Rupees 10 Lacs so that middle income group be left with more money in their hands.