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Abolishing income tax

, January 8, 2014, 0 Comments

Abolishing Income Tax-MarketExpressThe idea of abolishing income tax is not a new idea. While working in the Ministry of Finance thirty years back I have seen such budget proposals from various agencies sent to the government. But this is perhaps the first time that a leading political party has lent support to the idea. Even though BJP is now floating the idea it would not be possible for them to implement the idea in the real world without the support of other political parties. This is because implementing the proposal would require amendment of the constitution for which two-third majority in parliament will be required.

If this proposal is projected as a BJP proposal and Congress Party takes a stand diametrically opposite there will be no possibility of getting the proposal actually implemented. So if the BJP wants to get the proposal actually implemented in practice it will have to work for achieving some sort of a consensus among political parties for the proposal. On the other hand if BJP want to see it merely as a vote-catching idea actual implementation is not likely to take place any time in the foreseeable future.

The idea of abolishing income and corporation tax is not without merits. To compensate for loss of revenue to the government the rate of tax under GST can be fixed at 25% or more  and India will become a country which has only indirect taxes and no direct taxes. The idea of abolishing both direct and indirect tax would not be a sensible idea. The idea of getting all revenue by taxing bank transactions will also not be a good idea. This will only lead to a situation where people try to move towards more barter trade. Banking transactions should be seen as medium to be promoted rather than discouraged or taxed.

Abolishing income tax will be an idea which will have a great impact on black money generation. Today black money is that unaccounted income of the public that is not reported on filing income tax return. In a system where there is no income tax all sorts of unreported income will cease to be black money. All such income which is converted from black to white will come under the purview of honest money and become available for investment for the development of the country. This will provide a major boost to the growth and development of the Indian economy.

If there is no income and corporation tax there will be no need for the Income Tax Department of the government. It will thus lead to the abolishing of one of the most corrupt departments of the government. The role of chartered accountants will also be reduced to a substantial extent. Income Tax lawyers will also have to find other areas to work in. The innumerable tax cases that have been filed against the corporate sector by the IT Department will become a thing of the past. The corporate sector will be able to breathe a sigh of relief.

After the abolition of income tax the primary source of revenue to the government will be commodity and service taxes. The rate of taxation under the proposed GST will have to be enhanced to compensate for revenue loss under direct taxes. The staff that has become surplus from the IT Department can be redeployed for mobilizing revenue from indirect taxes.

The proposal to abolish Income Tax is a sensible idea and should be carried forward to its logical conclusion. But actual progress in the matter will be possible only if BJP doesn’t become possessive of the idea. In the interest of the nation and its economy the BJP should try to build up consensus  in the matter rather than looking upon it as a vehicle for scoring points over the Congress.