Saturday, June 20, 2009
Law Street in The Economic Times (June 2009)
The Economic Times (ET) carried this column, much earlier, on June 11. Guess, it was vital for others to know Zenobia Aunty's thoughts on what the government can do during this budget season for you or for me. Unfortunately, ET has also not uploaded it in the columns section, even though it is there on their website. Go here, to read the online version.
Or else, do scroll down. The Union Budget date is now announced, viz: July 6. Let us wait and watch.
Roti, makan aur taxes
• Salaried class must not be penalized
• Standard deduction should be introduced
• There must be simplicity in tax administration
Tax freedom day, for American tax payers, is computed annually by the US based Tax Foundation, an independent tax research group. This year, in 2009, American’s celebrated their “tax freedom day” a week earlier on April 13 as compared to last year and two weeks earlier than in 2007. The main reasons for its early arrival: Recession reduced tax collections even faster than it reduced income and the stimulus package included large temporary tax cuts for 2009 and 2010.
This is how it gets computed: An official government figure for total tax collections in US is divided by US’ total income. For 2009, taxes accounted for 28.2 per cent and the stretch of 103 days from January 1 up to April 13 is 28.3 of the calendar year. Thus, till April 13, it can be assumed that an American tax payer earned his salary only for the government, post which he or she earned this salary for himself or herself.
In India, personal tax collections stood at Rs. 96,500 crore for the period April 1, 2008 up to March 17, 2009, around 7% higher than the previous corresponding periods figure. However, salaried employees are likely to feel the pinch of the economic slow down in the coming year, with declining bonus, low increments or worse still pink slips. Companies may not hire on the same scale as in the previous years. These factors may see a dip in personal tax collections. Hopefully, the government will not tax the salaried class further, in the coming budget.
Zenobia Aunty agrees with the famous US jurist who said: Taxes are the price we pay for civilization. But, she would be a more cheerful tax payer and would ensure that her grumpy niece would also pay with a smile, if she saw steps taken towards:
simplicity, rationalization and transparency.
Perhaps the much awaited new tax code will usher in simplicity. That said there is also a need for greater ease in making tax payments and in filing tax returns. Perhaps salaried employees whose tax obligation has been entirely fulfilled as tax has been deducted at source by the employer need not file their tax returns? Or if they do have to file it, it should not be more than a page, require only basic details and they should be able to deposit it with their local nationalized bank or even the post office, instead of queuing up at the tax department. It is easy to say, why not avoid the last minute rush, but most of us get the needed Form 16 from our employers at the last minute.
There is another issue which Zenobia Aunty is very peeved about. Today, most employer organizations have set up funds, which do good work. Money is collected from employees by way of salary deduction and used for upliftment of the poorer sections of the society, such as sponsoring local schools. Most of these funds also have obtained the relevant exemptions, permitting their employees to claim a deduction (generally 50% of their contribution subject to an overall cap).
Now there are two issues. Firstly, an employer organization is not permitted to take into consideration this donation while with-holding salary, forcing the employee to remember and claim a deduction while filing his return. Second, why must only 50% of the contribution be eligible for tax deduction? There is a need to boost good work and perhaps greater tax sops would be welcome.
Given the inflation and rising costs of living, perhaps there is a need to reduce or abolish the surcharge of 10%? Today every individual tax payer earning in excess of Rs. 10 lakh per annum has to cough up this surcharge. Surcharge is always introduced for a specific purpose; however, it tends to stick – forever. The time is right to remedy this situation.
Some deductions that are given to us – the salaried class, are a laughing matter. Take for instance, the Rs. 15,000 annual deduction for medical expenses or the Rs. 800 per month tax free transport allowance. There is an urgent need to revise it upward, keeping in tune with rising medical expenses and conveyance costs. Standard deduction which was earlier available to salaried employees should be reintroduced. Preferably a higher standard deduction should be available to those in the lower slabs. Most employers are passing on the costs of FBT to employees through appropriate salary structuring and this hurts, standard deduction will help alleviate the pain, a bit.
A new pension scheme may soon be introduced in India; we must wait and watch the final print including the tax incentives. But, isn’t it time to revise upwards the cap on deduction under section 80 C for various investments. This threshold is too low and a major chunk of it, if not all of it, is exhausted with statutory deductions such as Provident Fund deductions. Ditto for the deduction available to pay back bank interest on home loans. The current limit of Rs. 1.5 lakh per year is miniscule, considering that property prices are still high, leaving no choice but to borrow heavily.
Last but not the least, we pay so many bills by giving our banks standing instructions. Payment of taxes should also be made as simple. If all this is done, Zenobia Aunty says, every day will be a happy taxpayers day.
Posted by Lubna at 5:54 PM