Tuesday, February 28, 2006

India Union Budget 2006-07: Where Are The New Tax Payers ?



Forget Anything ? Indian Finance Minister P Chidambaram After Presenting The Union Budget On Tuesday (Pic courtesy: Business Standard)


Within two weeks of skipping a credit card payment, I would get a call from the bank . "We are calling to remind you," they would say. This was more than seven years ago. Today, if I do a slightly large dollar purchase, real or online, I get a call within the hour asking whether i am aware of it.

The reason credit card companies and banks have been so up to date when it comes to payments and the like is technology. Fifteen years after liberalisation, the Government of India in general and the revenue authorities in specific are grappling with systems that put our otherwise claim of an IT Superpower to shame.

All the talent that goes into writing some of the most sophisticated banking technology software the world over is useless or not used when it comes to our country. The same technology that drives the credit card companies is not available with our revenue authorities. I strongly suspect out of choice.

Skimming Over Tax Collection

Finance minister P Chidambaram's Budget for 2006-07 once again skimmed over this most important but sorely neglected aspect of revenue collection. Nowhere did the Budget even mention how and where the effort to expand the tax base is. It did talk of computerisation - the target for fully computerised networks is end-2006. At a time when the second internet revolution is under way. Did someone say IT Superpower ?

The FM said the departments of income tax and customs and central excise will undergo Business Process Re-engineering. Its a somewhat mystifying term for a group of departments which are perhaps the most resistant to change in the country before or after the Bombay Municipal Corporation (BMC). He says nationwide networks will connect 745 income tax offices in 510 cities and 510 customs and central excise offices in 245 cities. He talks of national databases, national data centres, data warehousing faciltiies and so on.

None of this gives me a sense that the FM is any closer to ensuring that more people pay tax in this country. Like he or predecessors have not. This year's budget has been nice to individual tax payers like me as there are no additional taxes. That's because the Indian and global economies are booming. What if they slow down ? There are, depending on who you believe, something like 44 million individuals who file returns. Note that filing returns and paying taxes is not the same. The number that actually pay is a few million. And we are a nation of a billion plus.

Why Scrap 1/6 ?

The previous government introduced the 1/6 mechanism...ie..if you owned a credit card, car or travelled overseas, for instance, than you had to file returns. That has been taken away. Why ? Its almost like an admission that we have no more potential tax payers to catch. Or make existing tax payers pay more tax. Or have we found more exemplary methods to zero in on high spenders. Nothing that I have seen even remotely suggests the desire to do so.

The FM then said later that the process was falling in place. "As the department gets ready to mine the information, as the government captures more transaction.." This sounds like we have all the time in the world. And we are so rich that a few years here and there don't matter. Is it because the FM does not want to do something or is it the tax officials who are resisting tooth and nail. Remember the customs officials who splattered chewing gum on the closed circuit cameras at Mumbai airport because they did not want to be observed. Any ideas why ?

To sum up, not only is the government not using simple, existing technology to crack down on existing, non tax payers but telling the existing, paying ones that not paying pays ! So, while most of us pay taxes, a significant portion of potential tax payers in India continue to go scot free. And they can rest assured that the Government has no real intention of bringing them to book. If it really wanted to, it would have done what the credit card company did to me, within two weeks.

7 comments:

Venkat Ramanan on 5:41 pm said...

Hey Govind!
Yes, you have captured one of the most glaring miss in this 06-07 budget... He has failed to increase the tax base and instead tinkered as usual here and there... Doctors, lawyers, rich farmers, there is no measure to tax them... Did you see his interview? He says "yes, we will do them one by one". It was like saying we have millions of years ahead to be a developed economy. I was expecting something heavily outstanding from this budget, but I don't know why he has kept it so low profile!!!
Let us hope, some drastic changes are made in the upcoming parliament sessions! Maybe someone needs to tell PC that Time gone is time lost!!
Cheers,
Venkat

Arun Cavale on 10:24 am said...

We are a country of heavy social subsidies that span all aspects of our life:
- 4% people file taxe returns, possibly 2% population pay for 98% who don't
- urban areas pay for the upkeep of rural ones, esp if it happens to be Bangalore

While a judicious mix of socialism and capitalism is necessary for the overall societal development, care should be exercised not to tip the scales too much in any one direction. This is akin to the portfolio brand management that we study in business - its good to milk the cash cows to fund your other areas, but you cant do that too often and too much. Unfortunately, that's exactly what appears to be happening in India - the result is the growing unrest amongst the "payers" - whether its the tax paying folks like you ande I, or the citizens of Bangalore / Mumbai who see their local taxes being siphoned off completely to other places.

It's a tough shift to do, as we try to change our deeply entreched socialist mindset of 50 odd years. But, shift we must. Peacefully now, or with tumult later.

Ambrish said...

hey govind,
Though the concentration of the efforts of this budget has not been enough on increasing the tax payer base, but I see some positives too.

In my opinion, the removal of the 1/6 rule does make sense. Consider a person who visits a foreign country to meet his son/daughter. If the visit is sponsored by the ward, does it make sense to make the person go through all the hassles of an IT return.

Also the withdrawal tax is a good tool to unearth black money.

Anonymous said...

On technology and income tax - check out http://www.ezytaxes.com, they claim to "Simplifying" tax returns process. It is interesting option as most of the tax payers find the returns preparation process painful, either you do it your self and then get lost in the maze of rules, or use a CA, who does your taxes, charges you a hefy fees and you still not sure he has done justice to your return.

Scott Fish on 7:58 am said...

I actually found Credit Card Offer to be a pretty useful resource on credit card data in India. I used it recently for a universiy report.

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