How and what to tax?

"There is a fundamental problem with India's current tax system. India simultaneously has a tax base for direct taxes that is too small; and a tax base for indirect taxes that is too large," wrote Prof S Rajagopalan. Direct taxes comprise personal income tax, corporate tax and property tax. Direct taxes are said to be good because they are based on the 'ability to pay' principle, which means that those who earn more pay more than those who earn less. Rates of tax on income rise with rise in earnings. No tax accrues if income is less than Rs 250,000 in one financial year, which in India, runs from 1 April to 31 March. From Rs 250-500,000 the rate of tax is 5%, from Rs 500,000 to Rs 1 million the rate is 20%, and above Rs 1 million the rate jumps to 30%. Indian companies pay 25-30% corporate tax, while foreign companies have to pay 40%. The rate goes up to nearly 50% with surcharge and cess. Indirect taxes can be passed on to another entity, for instance, although a merchant pays sales tax on the goods he sells, he adds the tax to the price so that the consumer is made to pay. There are many types of indirect taxes in India, many of which have been combined under the Goods and Services Tax. Whereas direct taxes are paid by those who earn more, which is considered fair, indirect taxes are paid at the same rate by rich and poor, and so are considered regressive. Around 27.9 million people filed tax returns this year, which is nothing in a population of 1,300 million. In comparison, nearly 140 million, in a population of 300 million in the US, pay federal income tax. Even worse, in 2016-17, the government collected Rs 8.5 trillion from direct taxes, while indirect taxes raised Rs 8.6 trillion, the first time since 2006-07 that the proportion of indirect taxes have been higher. Just last week corporate tax rate in the US was reduced from 39.1% to 21%, which makes it considerably lower than that in India. US firms manufacturing in India will be tempted to transfer profits to the US and pay taxes there, wrote Prasad and Nair. So far US companies were keeping there profits overseas to avoid high taxes in the US but now they will move them back to the US, wrote D Kanabar. How much foreign exchange will flow out we do not know. So what to do? "I propose that Indian states should rely more on property tax, which is economically efficient, incentive compatible, and progressive," wrote Rajagopalan. In India, stamp duty varies from 0.5% in Madhya Pradesh to 8% in Haryana and Rajasthan. There are separate registration charges. At today's real estate prices states collect taxes on properties in advance, at the time of sale, so higher rates of property tax will be resisted. People in India are poor. Only way to collect higher taxes is to make us rich.