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Thursday 15 December 2011

Taxes in India: Wake Up Call

Looking at the tax scenario in India is very depressing. Only about 3% of Indians (35 million out of 1.2 billion) pay taxes.

Tax Receipts /GDP
Total debt /GDP

A recent report by Global Financial Integrity estimated that between 2000 and 2008 $104 billion was illegally transferred out of India to avoid taxation. That amounts to around one-third of the country's external debt.

But India does not seem to be very interested in trying to curb black money or arm-twist the banking safe-havens into telling the country who the depositors are. Does the government have something to hide themselves or are they actively shielding their near and dear ones?

The tax to GDP ratio is really scary. We need to quickly increase the tax base by taxing all types of income. The source of income should not be made a determinant of whether it should be taxed or not. So, all income whether agricultural or not needs to be taxed. I see no reason to not take taxes from the rich and super rich farmers. Also, this loop hole makes cheats out of otherwise honest men. (Remember, Amitabh Bachchan suddenly realized he was a farmer and bought farm land in UP!!)

Implementation of GST is also important to create a standard policy environment across the states. It has been delayed but the FM had promised that it would be implemented in 2012. I am hoping he will keep his word.

If we can take the tax/GDP ratio to nearly 30%, it would mean a lot more money in developmental and social schemes. I hope the government sees some sense.

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