The article discusses various aspects of the tax System, including how loopholes are exploited, the disproportionate impact of taxes on various socio-economic groups and challenges posed by indirect taxes.
Understanding Tax Burden (See Box)
- Comparison with Other Countries
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- Developed countries like Sweden have high tax rates, but offer free healthcare, education, and social security.
- In India, roads themselves seem to be saying, ‘Give us more money!’
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| Examples: 1. Property Purchase:
a. Income Tax:
- If the property is purchased using taxable income, the buyer has already paid income tax on income used for the purchase.
- Tax rates: 5%, 20 % or 30 %
b. Stamp Duty:
- Stamp duty is charge transaction value or circle rate (whichever is higher).
- Rates vary by state (typically 4% to 10% of the property’s value).
- Example: Maharashtra (5%), Delhi (6%).
c. Registration Fee:
- Registration fees are charged when registering the sale deed.
- Typically 1% of the transaction value or fixed rates as per state norms.
d. GST (Goods and Services Tax):
- Applicable only for under-construction properties, not for ready-to-move properties.
E. Capital Gains Tax (if applicable):
- If you’re selling another property to buy this one, capital gains tax may apply on the gains from the sale.
Example 2: Car Purchase:
a. GST:
- GST is charged on the car’s ex-showroom price.
- Small cars: 28% GST • 1-3% cess. • SUVs and luxury cars: 28% GST • 15-22% cess.
b. Road tax:
- Road tax is charged at the time of registration.
- Rates vary by state (5% to 20% of the ex-showroom price).
c. Registration Charges:
- Registration fees are fixed by the RTO:
- 600 to 1,000 for two-wheelers.
- 4.000 to 10,000 for cars (depending on vehicle type and state).
d. TCS (Tax Collected at Source):
- If the car price exceeds 110 lakh, TCS of 1% on the value is applicable.
e. Income Tax:
- Similar to property, your income used to purchase the car has already been taxed.
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Direct Vs Indirect taxes
- Indirect taxes, which are levied on every purchase, offer free healthcare, education, and social security. impact the poor more than the rich. This is because the poor spend a larger portion of their income on basic necessities.
Tax System Loopholes
- Multiple Tax Slabs
- Diamonds have a 1.5% tax, while pencils and medicines have a 12% tax! This means the burden falls disproportionately on the common man.
- Agricultural Income Exemption
- Originally intended to help farmers, this loophole is now exploited by large industrialists and politicians to avoid taxes.
- Double Taxation
- Health insurance premiums, hospital beds, and even essential medicines are taxed. Countries like Canada and the UK offer tax exemptions on essential medicines.
- Religious Trusts
- Charitable trusts are tax-exempt, but today they earn crores from merchandise and online platforms. Proper auditing is needed to ensure accountability.
Inflation and its impact
- Food Inflation: Food Inflation in India is as high as 11% and 42 % for vegetables due to taxation and poor supply chain management.
- Fuel Taxes: Fuel is not included in the GST structure, leading to multiple taxes that increase the cost of consumer goods.
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GST Introduction and Issues
- The concept of One Nation, One Tax’ has become complicated in implementation.
- There are five slabs of 200+ forms, and each state has its own interpretation.
Why Problems Exist?
- Instead of simplifying, the Simplify GST slabs system has become even more complex.
How to Fix?
- Simplify GST slabs into essential, standard, and luxury complex categories.
Economic inequality
Rich Vs Middle Class
- The salaried class receives no exemptions and their salaries are directly taxed. Those earning over 1.5 crore use sophisticated tax planning and exploit loop holes.
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Small Businesses:
- Complex tax return filing rules make up compliance cost high making it difficult for small businesses to survive
Solutions:
- Direct Tax Reforms: Make tax slabs realistic and linking them to inflation
- GST Slab Simplification: Redefine tax categories
- Property tax reforms: Implementation of single window system
- Transparency: Provide taxpayers details where their money is used.
- Increasing tax base: Formalise the informal economy
January 11, 2025
