Saturday, January 23, 2016

Why not replace the adversarial system with service? Much cheaper.

A chartered accountant makes a heartfelt plea for a better direct tax system. Direct taxes in India are based on the iniquitous 'Tax Deduction at Source', or TDS, which mandates that tax should be deducted before any payment is made. Thus, before paying salary an employer has to deduct tax and submit it to the tax department. A bank must deduct tax at 10% if the total interest accrued on term deposits exceeds Rs 10,000 in the financial year. Anyone paying rent in excess of Rs 1,80,000 in one year has to deduct TDS as well as Service Tax at 12.5% on the rent. Since the taxes are meant to be paid by the landlord it means that the payee is acting as an agent of the government. But, while politicians and civil servants get huge salaries and perks from the taxes we pay the payee is promised punishment if he fails to carry out the dirty work of our masters. The taxpayer has to claim back excess tax paid when he files returns at the end of the financial year and if there has been any mistake then he may never get his money back. Rs 650 billion in tax refunds have been paid so far this year but many people are still waiting. If refunds are delayed the authorities must pay interest at 6% but a panel, headed by a retired high court judge, has recommended less stringent treatment of taxpayers and a higher interest rate. Imagine the amount of money the government is wasting in paying the humongous salaries of tax officers, which has been increased by another humongous addition of 23.55% by the Seventh Pay Commission, for calculating refunds of millions of taxpayers and then paying interest on their sloth. The most amusing news for us hapless taxpayers is that no one, including the government, knows how many government employees actually exist because India has a long and proud tradition of 'ghost employees', whose salary is drawn every month. In her blog the accountant suggests a passbook system where an entry will be made every time a TDS is deducted on that taxpayer. It is an excellent suggestion to reduce taxpayer harassment and save time for officials but it does not go far enough. In a countrywide drive, that the gestapo would have been proud of, 93% of adults have already been issued an Aadhar card with a unique 12 digit number based on photographs, prints of all 10 fingers and iris scans. This is apparently to target handouts to the vote bank so that taxpayers do not benefit. Why not use Aadhar numbers for targeted salaries and eliminate the ghosts? The Aadhar number should be the only bank account number for individuals and tax officers will sit in main branches of banks where they will instantly calculate what tax to be paid. The adversarial system was used by the British. We want some service from our public and civil servants. Pipe dream?

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