The central board of direct taxes has released tax statistics after 15 years. The data consists of number of tax payers and how much they pay. The government released the data after the request of several academicians and economist. There were popular request from French economist Thomas Piketty who also wrote the best seller “Capital in the twenty first century” in 2013. The chief economic advisor Arvind Subramanian promised to release the data during the Jaipur literature festival in January. The data was released in a short period of announcement.
There is a severe inequality in the tax payers. India has only 1 percent of tax payers who bear the burden of the entire nation. Another contrasting picture that can be seen in this data is the number of “crorepatis” in India. The country has just 18,539 tax payers who pay more than 1 crore tax whereas the sale of luxury cars of more than 40 lakh value tells you another story. The four major automakers Benz, Audi, Land Rover and BMW have a combined sale of more than 25,000 luxury cars.
This brings into light the poor compliance norms in India. The government has taken steps to make PAN details mandatory during high end transactions. And duplicate PANs are also getting removed from the system to stop misusing them to hide total income. The government also has to broaden its tax base and increase the number of payers rather than burdening the already burdened salaried class.
The income tax code in United States of America is complicated and time consuming ordeal. The citizens are in need of a flat tax to let them free out of this complex web of tax.
Almost 40 countries in the world have flat tax system which has so far worked well. Flat tax is a single rate income tax structure with few deductions. The entire tax return can be filled in a single sheet.
The internal revenue service (IRS) estimated that 6 billion man hours is spent on calculating and filing tax and the expenditure to compile with the tax code is $200 billion. In other words paying tax has itself turned into an industry.
If only these resources are diverted for more constructive purposes the country will have a better economic growth. However the government is nowhere near to make a change to this structure.
The government sees deductions and credits as opportunities to buy voters. In the past there were politicians who made it to the President post on promising a flat tax model. It is none other than the Ronal Regan who advocated a 30 percent income tax cut across the class. However he never implemented it and used his landslide victory to give more reductions.
Coming to present day politics it is Ted Cruz who is more vocal about flat tax structure. This move will get him more advantage over other contestants, establishing a firm grip on nomination.
The finance ministry is taking rigorous steps to reduce fiscal deficit. The ministry is seeking regular reports from tax officials. Amnesty is provided by the government for citizens to pay previous unpaid taxes without any further prosecution.
These steps are expected to boost the tax-GDP (Gross domestic product) ratio in the country. At present the ratio is at 16.6, the lowest among developing countries. The ratio shows that only one in 18 earning individuals pay taxes.
The calculated arrear tax amount is $117 million. The amount is four times of what it was six years ago. However tax officials feel that only 15-20 percent of 117 million is recoverable because some of the defaulters are not in a position to pay another reason being India’s slow legal process.
Tax officials are trying to gain from individuals or entities which are currently in a position to repay. But not before a long legal battle that these entities will be ready to pay the taxes. Popular examples of this case are Vodafone and Cairn energy.
The finance minister has aimed to reduce the fiscal deficit to 3.5 of gross domestic product compared to 3.9 of GDP at present. The government is in dire need of money.
The 7th pay commission is expected to give government employees a 24 percent hike in salaries. The government has also announced tax amnesty in a bid to encourage tax defaulters to pay their dues. Tax amnesty ensures that the defaulters are not subject to any prosecution over their payment of dues.
On April 4th, 2016 the Indian Express published the news that the Finance Ministry is going to deal with the Panama paper issue. Later, the officials from the Finance Ministry confirmed that the investigating officers from government departments like the Financial Intelligence Unit (FIU), the Central Board of Direct Taxes (CBDT), the Foreign tax and Tax Research division and the Reserve Bank of India (RBI) will form a committee to investigate the Panama paper issue.The Ministry official said that the, the report published by the Panama paper will help the government as it has already taken several steps to eradicate black money and detect the flow of the black money.
The officials include that; the government would also seek the help of foreign governments, to collect the detailed information about the report. They also said that the introduction of the BEPS of the financial budget 2016-17 will help the country to identify the tax avoidance by following the tax-havens.Mossack Fonseca is a law firm in Panama which is the headquarters of the havens for tax. It is famous for its production of offshore entities for its clients all around the world. It consists of the eleven million records of the Panama papers, which is secrecy file maintained by the law firm & accounting services.
The firm, Mossack Fonseca hides the ownership of the firm under a fake name to prevent the individual from taxation. The firm has a record of the names of the people involved in the business with them, in setting up a foreign company.Suddetuche Zeitung is a Munich based newspaper joined with the International Consortium of Investigative Journalism (ICIJ) a year ago, published the report. There are other media from all over the world are part of the ICIJ. The Indian Express from India is a part of the ICIJ.
The Income tax department started raid against the companies and people who were part of the black money transaction and who avoided to pay their financial tax for the annual year.Last year, the Income tax department of Kolkata filled case against a large number of companies and individuals, who were part of the ‘ penny stock ‘. A ‘ penny stock ‘ trades at a low price below rupees ten or an entity whose market capital is Rs.100 crore in the market. In the investigation, they found out that the price of the shares was fake, so that they can claim for the gain and loss in the long-term and short-term capital. And hence try to avoid themselves from taxation . Because the Long-term Capital gain (LTCG) and the Short-term Capital loss (STCL) are exempt from taxation.
The official from the tax department said that about five hundred crore rupees are exempt from taxation because of penny stock. These were amount that was later converted to white money.In the investigation, the entities that evade from tax payment in the eastern part of the country also have its services in other parts of the country. Hence the income tax department initiated the investigation throughout the country.The Income tax department will fill a case against the individuals and the entities who were guilty, and the Securities and Exchange Board Of India (SEBI) will also take action against them. The SEBI has found that more than thousand companies have evaded from income tax for fifteen thousand crore. And the Income tax department officials reported that about 1,800 entities are under suspicion.
The union budget announced by finance Minister Arun Jaitley declared that frequency spectrum is not just the sale of goods but will be liable to service tax.The government has proposed at 14.5 percent of service tax over the spectrum deal. The amendment made to the finance act of 1994 by the Finance Minister brings much clarity to the spectrum trading and avoids litigation. This clarifies whether the deals come under service tax or liable under VAT. However the cellular operations Associations of India (COAI) estimated that this move will cost INR 30,000 crore to the telecom industry. The telecom industry according to COAI is already in financial distress with INR 3,50,000 crore debt. There are two sides to the argument of final impact to telecom industries.
The companies paying service tax will gain back through tax liability and it is only a matter of cash flow. There will not be any significant raise in tariff charges or will incur any loss the industries. The spectrum deal would have been costlier only if the government had increased VAT on the spectrum. At present VAT varies between 5 and 15 percent.Despite the above stated advantages COAI has written letter to Finance Minister Arun Jaitley that this move will affect the funds required to push the 3G and 4G services. The lobby group feels this will limit the companies in auction and will affect the survival of certain telecoms.COAI is composed of Bharati Airtel , Idea Cellula , Vodafone India and Reliance Jio infocomm.
GST (Goods and services tax) introduced by the union government will make industries competitive- RBI feedback on the bill. The GST bill will resolve double taxation and complex tax structures for companies.The bill will combine various taxes into a single component and reduce burden on industries which will bring down the production cost. The unification of tax will create a common national market. The bill will increase the tax compliance rate as the there is only single tax and gives little chance for tax evasion. GST will cover a wide range of goods and services thus increasing the tax collected. GST will collected at the end point of sale. The increase in compliance rate is very necessary, given that only 5 percent pay taxes in India.
At present the required number is at 20 percent. Financial experts claim that GST will bring additional revenue of $15 billion due to increase in export of goods.After value added tax (VAT) GST is the first step in reforming the wide-range of indirect taxes. The GST bill was passed in the Lok Sabha (the lower house of Indian Parliament) and is yet to make its way through the Rajya Sabha (the upper house of Indian parliament). The ruling NDA government lacks majority in Rajya Sabha. There are two types of GST one is levied by the state government -SGST and the other by the central government.The fear among the state governments is that GST will reduce their revenue and the union government needs to compensate for the reduction.
By the first week of April, the Finance Ministry is planning to release the new Income Tax Return (ITR) form. It may be like the previous year’s income tax return form.Reports say that about 93 percent of people have evaluated the income tax return files and the Ministry of Finance is keen on simplifying the new income tax return form. The tax department would release the a revised version of the income tax form for the manipulation capital tax. This would help the assessees to analyze the liability without any assist.
Last June, for the salaried people the Income tax department released a revised version of the tax form. And anytime during the year, the taxpayers had to end their current bank account and the savings bank account precluding the dormant account.The income tax form had the provision to register the bank account of the taxpayers, so that they can credit the refund amount. It also had a column to fill the IFSC code of the payer’s bank. The Aadhaar number of the tax filers were also sort out be the ITR. But the main defect of last year’s tax form was that it had 14 pages, which was difficult for the filers.
Due to other controversies, the Revenue Department held the income tax return form for processing.The Finance Ministry reports, that the number of pages for the new income tax return form is only 3 pages. And the online filing of the form will be available only from the third week of June as the forms are under process And the details about the foreign trips and the amount spend are not required in the new form. The passport number is alone required for the form. The bank account number and the IFSC code of the payer’s bank is necessary, and the filer need not mention the bank balance. These are some of the changes in the ITR form.
The Finance Minister, Arun Jaitley proposed the Union Budget 2016-17 on Feb 9th. After the budget proposal, they spread a rumor that the Public Provident Fund(PPF) was also taxable during the withdrawal period. But they clarified that only part of the Employees Provident Fund is taxable on withdrawal. Revenue secretary Hashmuk Adhia, in an interview said that the budget proposal on Employees Provident Fund was about the interest component and not the 60% corpus. So that people would invest in the pension, instead of utilizing the entire amount.
And to make all the retirement scheme equal. The NPS fee is taxable on the maturity of the plan, while the other schemes were not.Hence many people did not choose the NPS, even when they offered more detections. But the ministry stated that, there is a tax exemption for a person who is a member of the EPFO with a monthly payment Rs.15,000 and the PPF is not affected. Thus, from about 3.7 crore members of the EPFO, only 60 lakh members come under this scheme. So these people can withdraw the amount without any tax liability, provided the person contributes 60% in an annuity.
The Finance Minister said that, according to a new proposal, tax exemption is for the withdrawal of 40% from the entire amount during retirement period, and the balance 60% is free from tax liability if you put it in the annuity. Thus the corpus is tax exempted if you invest in the annuity. Finance planner Harsh Rootngta says that, if a person invest the remaining 60% in an annuity, it would affect about 70% to 80% of the people. And if he is not interested in investing in the annuity, he has to pay the tax. Hence, if there are new rules in the EPF, NPS is the best option even if it is not a fixed return.
The High power committee report of the Central Board of Direct taxes (CBDT) maintained the existing tax, considered ‘neutrality’ as a keyword for the policies formed by the OECD’s Fiscal Affairs Committee . The present report highlights ‘BEPS’ as its focal point. The Base erosion and profit shifting (BEPS) refers to the negative effect of the global company’s tax avoidance plan on national tax.
The new report signifies the change required by the International taxation rules, and has also mentioned the options, like a nexus based on the economic presence, withholding the digital transaction tax, and the Equalization levy.An Indian resident has to pay tax in India for his global income, whereas a non-resident has to pay tax only for his income he received in India. Yet, a person gets relief from the tax treaty, if the person is a taxpayer of a country with which India has signed the tax treaty.And in the recent budget proposal, they announced the Equalization levy (EQL) for the non-residents.
According to the proposal, the income earned by a non-resident in India is liable to pay the EQL and the agreements on tax avoidance are not accepted. The reason behind this is to regularize the taxation. Thus, a non-resident has to pay for his revenue in India. So, the ways in which a company can tax a non-resident are, the Equalization levy, holding the digital transaction and the nexus. And India has chosen the Equalization levy (EQL). According to the Economic survey 2016-17, around 85% of India’s national income has fallen out the net tax.