Changes Related To Progressive Taxation Among Suggestions Put Forth By Leading Economists

Online, February 6, 2013 (Newswire.com) - An official statement released by the Finance Ministry today revealed a number of suggestions that leading economists have recommended to the Government of India with regards to taxation as well as financial issues in the country.

The issue of progressive taxation has come up again with economists stressing on the need to adopt the principle that will see higher income groups paying higher taxes. The Chairman of the Prime Minister's Economic Advisory Council, Mr. Rangarajan had recently pointed out at a seminar that the Government should announce a surcharge for the higher income group instead of making a change in the existing tax slabs. Stressing the need for increased revenue, he said that those who earn more should be willing to contribute more too.

A committee had been set up under the guidance of tax expert Mr. Parthasarathi Shome to look into a variety of taxation issues and economists have come up with a wide range of suggestions. One of them includes the imposition of inheritance tax, something that the Government has stayed away from for the last three decades.

Economists also pointed out that a penalty system should be put into place to avoid circumstances where taxpayers avoid paying taxes in spite of earning large incomes or hide their income to save on tax money. They also deliberated that enforcement of tax laws should be give due importance, a factor that will widen the tax base and punish defaulters.

Commenting on the issue of progressive taxation Mr. Aashish Ramchand, the Chief Executive Officer of MakeMyReturns.com, a leading tax portal, said, "The theory of bringing equality in society by taxing the rich at a higher rate may not necessarily achieve the objective of higher tax collections. The rich are probably very well versed in the concept of moving money around from one tax jurisdiction to another. The practice of taxing the super rich has also led to consequences of tax evasion. Large-scale cash transactions erupt in the system leading to a black market economy. India has always been targeted for having the maximum incidence of black money as seen anywhere in the world. Such an increase in tax rate in my opinion, may lead to further increases in black money in our financial system.

The way to counter this is to have effective and robust systems to counter an inflow of black money in our economy. As mentioned in the news article, an effective penalty system for those evading taxes and concealing their incomes will greatly help in this endeavor."

This reiterates the view that the economists have tabled and draws attention to the issue of black money as well, an issue that has always made headlines, but has eventually been put on the backburner repeatedly.

Mr. Ramchand however pointed out to a few complications that could come to the fore concerning the issue of inheritance tax, and said, "Reintroduction of estate taxes will draw a lot of flak from the Indian taxpayers. For inheritance tax to work there needs to be more clarity on how the system will work. Reintroducing the inheritance tax will require a change in the current tax laws and explain in a transparent manner the mode of taxing an inheritance."

He also mentioned the existing system in the US and said, "The concept of inheritance tax is prevalent in the US and even then, people have found out ways to avoid paying it. For example, by setting up a special purpose vehicle and transferring the inherited assets to that entity. This may bypass the taxation of these assets. So therefore, for Inheritance tax to work in India, clarity is required on how such a tax will be computed."

The Finance Minister, Mr. Chidambaram's, final decisions on all these views put forth by the country's well-known economists will be seen only in the Budget session. Until then, both, taxpayers as well as the people of India can only hope for tax reforms that deal with the important issues and that too with a strong hand, at least in the areas like black money where stringent measures are absolutely required.