What if there is very little to cheat?

R Jagannathan thinks that a flat 15% should be the rate for both direct and indirect taxes in India. A flat rate of tax has been discussed in other parts of the world for a long time, with people on low incomes being exempt. The argument is that with a flat rate, say 15%, a person earning Rs 100 will pay Rs 15, while a person earning Rs 1,000 will pay Rs 150 as income tax. So the rich will be paying more anyway. But progressives argue that, not only should the rich pay higher amounts of tax, but also the rate of taxation should rise in tandem with rising incomes. Indian politicians firmly believe in high taxes. A surcharge of 25% has been added to the tax paid by those earning Rs 20-50 million, bringing the effective rate to 39%, while for those earning more than Rs 50 million a surcharge of 37.5% takes their rate to 42.7%. This was justified on the grounds that other countries charge even higher rates on the super rich and, India being a poor country, it is the duty of the rich to help with "nation building". Comparing with other countries is wrong because they spend much more on education, healthcare and old age pensions for their citizens, wrote A Thakur. Not just that, these services are provided to everyone, including the rich, which is why people do not mind paying high taxes. Demonetization, wherein Rs 1,000 and Rs 500 banknotes were suddenly withdrawn to catch people who had large amounts of black money in cash, was inflicted in 2016. The goods and services tax (GST) is supposed to eliminate avoidance of indirect taxes by traders but also to spotlight high spenders who can then be checked to see if they have paid direct taxes. "The key metric to judge whether a policy is revenue enhancing (or not) is tax buoyancy," wrote R Kishore. But, "there has been a big shortfall in indirect tax collections, primarily on account of shortfall in GST collections" and buoyancy of "direct taxes has also suffered a big fall". A survey by the Reserve Bank (RBI) showed a big drop in spending on non-essential goods and services by consumers. Sale of passenger cars is collapsing, even for the market leader Maruti Suzuki. No GST can be collected if people stop buying. A survey by the National Sample Survey Office (NSSO) showed that 286 million men were working last year, "a decline from 304 from 2011-12", of which 82% earn less than Rs 10,000 per year. Another 13% must be earning between Rs 10,000 and Rs 21,000. So only 5% of men, or just 14.3 million, are earning more than Rs 21,000, when one has to pay income tax. For women, the situation is even more dire, as the labor force participation rate (LFPR) for women is only 23.3%, wrote Rukmini S. Around 68.5 million Indians filed tax returns in 2017-18 but only 20.2 million actually paid any income tax. Politicians and civil servants are convinced that vast numbers of people are cheating on taxes. Actually few are working and even fewer are earning enough to reach income tax threshold. That is the real tragedy.