Sunday, February 13, 2005

Further Thoughts on Tax Reforms

This was my improptu response to the previous post...

First reforming the tax system is a highly complicated issue...although in our (India's) case I think it is the best time to do it before it gets a lot more complicated.

The 2% you found was I am reasonably sure, the percent of people paying income tax. As you pointed out this is largely from tax deduction at source for govt and private/organized sector employees. The income tax collections are usually in the range of Rs 35000 crore approx, although recently that has been increasing.

Enforcing tax laws in the service sector ,such as shops, retail stores etc is not very difficult. Infact the Value added tax(VAT) is being introduced for this sector. The problem with this sector is more due to corruption than with enforcement. Therefore I do not think payment with credit/debit cards will be of any value as a solution to that problem. It may only increase the prices because of additions costs.

When government corruption is rampant, one may question, where all the money you pay in tax is going. Can you be reasonably sure that your money is being well spent. First we need a Right to Information Act so that eveybody who wants to know can know where their rupee is going.

Lastly, I am sure you remember my idea of abolishing income tax as a means of increasing overall tax collections. I still think that is a great idea. We must be pro-active capitalists!

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