Bharatiya Janata Party MP and renowned economist Subramanian Swamy has been a staunch supporter of the idea of income tax abolition for a very long time. Such a move is morally justifiable and economically viable.
Speaking to PC, he said, “Who pays income tax? The rich have chartered accountants [CAs]. The poor obviously don’t pay it, as they are below the ceiling. So who ends up paying the income tax? Primarily, the middle class—the young, professionals, entrepreneurs, the people behind startups. These are the people who are creating wealth for the country, generating employment. Should they be punished for doing good work?”
And it’s not just the financial burden on the middle class but also the harassment that they have to face at the hands of income tax officers. “There are so many complaints. I myself have faced this. When I came to India after teaching at Harvard University, I was employed by IIT, Delhi. Our tax was deducted at source, yet the income tax officer would ask a hundred questions—all irrelevant. I was not a public figure at that time, so he had no compunctions in making his demand: finance my family vacation to Kashmir or I’ll make your life miserable.”
That as in the 1970s, but income tax officers can still make anybody’s life miserable, Swamy said.
But would income tax abolition be sustainable? “Of course, it will be,” he said. “It will translate into more purchasing power in the hands of people. They will pay for more goods and services, thus increasing indirect taxes. The savings they do would be used for enhancing economic activity. This would augment the growth rate, create more jobs. Therefore, income tax abolition is sustainable.”
He also refers to the Laffer Curve, a theory propounded by an American economist, Arthur Laffer. It says that the lower the taxes, the higher the tax collection. This applies to India.
Swamy pointed out that there are many ways of increasing flows into the public exchequer, which unfortunately the government is not doing. “Let the government nationalize the accounts of all Indians in overseas destinations. According to estimates, there are Rs 120 lakh crore stashed in various tax havens. Those Indians who have legally earned their money can claim that from the government. It is only the corrupt and criminals who would lose their ill-gotten wealth.”
Besides, the government can earn a lot of revenue by auctioning natural resources—spectrum, land, coal.
Unfortunately, the Narendra Modi government doesn’t listen to Swamy on income tax abolition. Economic policy is being framed and executed by bureaucrats and technocrats who remain focused on revenue maximization instead of all-around development, employment generation, improvement in living standards, and overall prosperity.
Worse, there is a perverse goal that all manner of politicians try to achieve and economists recommend—of increasing tax base. On the second anniversary of demonetization, Finance Minister Arun Jaitley wrote a blog in which he said that in the last fiscal, 68.6 million tax returns were filed, an increase of 25 per cent over the previous year. As of October 31 this year, he wrote, 59.9 million tax returns have been filed—an increase of 54.33 per cent over the previous year. About 8.6 million new taxpayers were added this year. When the Modi-led government came to power in May 2014, the number of I-T filers was 38 million, which has gone up to 68.6 million. “By the time the first five years of this government are over, we will be close to doubling the assessee base,” Jaitley wrote.
Since, as we proved earlier, there is not moral justification for collecting income tax, expanding the income-taxpayer base translates into legal extortion of citizens.
It’s not that the BJP government favors income but the Congress stands for justice. In fact, it was under the charge of the grand old party, which ruled in Independent India for over half a century, that income tax became a bane of the people. In the heyday of socialism, the highest slab went as high as 98 per cent.
So, it is not surprising that some time ago the Congress briskly scotched any speculation that it favored income tax abolition. Priyanka Gandhi Vadra had reportedly proposed the end of income tax at a party meeting on July 13. Congress spokesperson Randeep Surjewala categorically dismissed all reports which suggested that his party was contemplating the abolition of income tax for people under 35 years of age if it came to power in 2019. “I was asked the same question in the morning and I said no. So, I am going to say the same thing. There’s no such plan,” said Surjewala during a press briefing on July 27.
In a nutshell, there is nothing on the cards to suggest that income tax would be abolished in our country in the foreseeable future.