Monday, January 6, 2014

BJP considers abolishing income tax

When Narendra Modi called the current taxation scheme a burden on the common man, sharing the dais with yoga guru Baba Remdev on Sunday in Delhi, it wasn't a remark made off the cuff. "Time demands a new tax reform," the BJP's prime ministerial candidate said.

There are serious discussions within the BJP on how to overhaul the tax regime and make it more beneficial for the common man as it prepares its Vision Document 2025 that will be released with an eye on general elections, due by May. 

The obvious question is: where would the government get its money from?

The BJP says that could come through radical reform in the tax system and also possibly through bank transaction taxes that could earn Rs. 40,000 crores in revenue. The party says it's also planning major changes in petro-economics with an eye on petrol and diesel pricing that's at par with international standards.

Only approximately three per cent of India's population pays income tax while the bulk of the government's revenue comes from indirect taxes that include excise, service, sales and value-added taxes among others.

However, many believe the BJP's populist idea is not practical.

Congress spokesperson Sanjay Jha mocked the idea, "Ramdev's model of economic freedom is more like freedom from economics. I'd like to say intellectual bankruptcy comes before economic bankruptcy. If Ramdev were to be Modi's economic advisor, we just have to say you don't hire a yoga expert to have a healthy economy."

Though Delhi Chief Minister Arvind Kejriwal, a former tax officer himself, is in favour of simplifying the tax system, he cautions against the idea of abolishing taxes altogether. "The suggestion that all taxes need to be abolished to be replaced by a single tax in a modern economy is complicated and betrays its understanding."

Other experts point out that though simplification of tax policies is long overdue, what is needed is consistency, no matter who is in power.
"There has to be political will and there has to be consistency on this. There are so many amendments so often. Usually what ends up happening is that people make plans for 10-20 years but suddenly realize what they have planned for last year is no longer applicable for this year," KM Agarwal, former President of the Institute of Chartered Accountants of India told NDTV.

Industry body FICCI's president Siddharth Birla says, "Whichever is the government of the day should lay down policies, should lay down a vision, should lay down a direction. I don't think there is any particular concern whether it is A or B or C, but what we do want is implementation and clarity in policies."

The question is: will the BJP act on the radical proposal if it comes to power?