Makes a case for reducing oppressive taxation regime in India

1. Reform India’s Oppressive Tax System
Shantanu Basu
The buzzword on Raisina Hill today is tax reform. Yet whatever is happening, on both direct
personal and indirect taxation fronts, is just the opposite. On direct tax front there are a million
exemptions, rebates, etc. On the indirect tax front, what passes as one nation one tax is not much
more than regrouping disparate taxes while retaining their extraordinarily regressive nature. If
the economy is to grow by generation of demand, the overall incidence of taxation ought not to
cross the 25% barrier. Against this most of us shell out probably 50-60% of our incomes on all
types of taxes. There remains huge corruption in our taxation system that will permit no facile
resolution in the foreseeable future.
Therefore why not abolish all personal income tax rebates, exemptions, deductions, etc. These
could be replaced by an individual lump sum deduction from gross income at 5%, 7.5%, 10%,
12.5% & 15% for incomes in the 0-10 lakh, 10-25 lakh, 25-50 lakh and 50-100 lakh and Rs. 100
lakh+? Similarly, why not rejig GST and relate it to price slabs like 0% for all goods & services
up to Rs. 500/unit purchased (excluding sin goods and POL), 2.5% for 500-5000, 5% for 5000-
15000, 7.5% for 30000-75000, 10% for 75000-100000 and a flat 15% (including sin goods and
POL) thereafter? Simultaneously, bring sectors like pisciculture, organic and exotic produce
farming, and private trading in used vehicles (by RTOs mandating proof of GST recovery from
seller while transferring ownership to the buyer), online sales on Quikr, etc., and many more
hitherto evading the GST net. Further, since governments are the biggest single buyers, why not
mandate full recovery of GST due on supplier bills and remit them to the state exchequer to
minimize leakage of revenue. Dealers could be given a certificate for ITC purposes instead.
Likewise, POL retailing companies could collect GST from their dealers and issue a deduction
certificate to dealers. Similar arrangements could be contemplated for all other manufacturers.
Many would argue that my suggestions would wreak havoc on government’s finances. How
many of us know the meagre expenditures of governments on development, cutting across
political regimes? Should citizens be paying the price of an expansive GOI that today needs 76
ministers while states have corresponding numbers running into several hundreds? Why should
citizens bear any longer with the sheer inefficiency of non-tax revenue collection by the state?
For how long more will taxation harassment to fill personal coffers be sustained by taxpayers
and common people? Why should the common man fuel armies of clerks and officers that have
little to offer for development other than mostly serve as impediments to development?
There is little point in raising taxes to fuel waste and profligacy, unless appreciable and visible
improvement in services to citizens happens. Each percentage point on salaries & wages could
potentially shave Rs. 8000-12000 crore/annum while for all tax collections, a percentage increase
could make an annual accretion of Rs. 28000 crore possible. A 10% real decline in employee
salaries could add Rs. 80000-120000 crore/annum. Added to this should be a corresponding
10% decline in govt’s establishment cost or another Rs. 75000-100000 crore/annum.
A 5% decline in overall tax rates may have the potential of raising revenues by 15-20% to about
Rs. 30000-35000 crore/annum. In effect, a 10% real cut in personnel and a 5% decline in the
overall tax rate has the potential of adding Rs. 2-2.5 lakh to the public exchequer per annum.
Further savings could be achieved by diverting 10-15% of existing government employees to

2. scheme/project monitoring with real time uploading of photographic and statistical evidence of
progress of work on GIS maps to regulate release of funds that are siphoned often to the extent of
an unthinkable 50-60%, sometimes even more.
There is immense scope for generating 30-50% more public funds per annum. It needs immense
political imagination and stewardship to achieve it. Political leaderships need to take the lead,
conveying decisions, rather than await ‘cooked’ files from their ministries. The need to keep one
safe encompasses both bureaucrats and politicians alike. The very fact of a mismanaged Swachh
Bharat mission, GST and innumerable other schemes launched over the years owes much more
to the near total absence of any honest statesmanship and hopeless reliance on a colonial
bureaucracy. As things stand now, cheap populism, bluster and bumbling remains unchanged
which is why the economy stands still, citizens have no jobs, and businesses are sinking, farmers
committing suicide and many more maladies. The first place to start reform is India’s grossly
regressive taxation system without much development, no social security, et al for citizens.
The author is a senior public policy researcher and commentator