Friday, July 24, 2020

Incentive for Paying Taxes - Indian Taxation

The number of people paying Income Tax in India is a very small percentage. A few years back, it was just 2-3% while recently we have seen more people paying taxes and has been close to 5% mark a year back. With tighter measures from the government, especially after the demonetization, the number has been increasing slowly. But its nowhere close to the percentage, which it should be. 

One of the reasons that, people in India, *don't* want to pay or avoid taxes, as they feel that they are not given any benefit for paying the taxes.  Though the law does indicate that one should pay the taxes in proportion to their individual incomes, everyone finds a way to avoid it.  

WHY ??

I always feel that, if any individual who is paying taxes, and the money which is paid by the taxpayer is used by the government for all the development and other benefits to the nation as a whole, then they should also be rewarded for the tax payment. The problem is that there is no differentiation in the treatment for the one who pays tax and one who doesn't, assuming they are earning well and can afford to pay the taxes( leaving out the poor in this debate). 

In Principle, there should be a way to incentivize people who pay taxes. I really can't think which would be right or not, and these mentioned below are only to explain the thought process. As there can be different issues when actually implemented, which the administration knows better.
  1. Lesser tax when purchasing new vehicles or real estate. 
  2. Provide better government schools and free education should be provided for their children.
  3. I would have loved if I can get toll free roads for those paying taxes. It's instant gratification, and also a visible one, which can push others to pay taxes.
  4. Priority is getting some crucial services from govt.
  5. Why not a TaxPayers line when queuing? 
And then there is a long term need for providing facilities after their earning age. Those paying taxes should be given additional benefits. 
  • Medical Benefits
  • Retirement Pension or similar
As long as a citizen sees a value for himself in the long run in paying Taxes, and more importantly partial treatment to those not paying, one will not see the incentive. A need to very tightly link the Aadhar with the Tax Paid and hence the incentives should be made easier through modern technology.

I really hope that one day, people should yearn to pay more taxes rather than avoid it. And that can only happen when one sees the value add in doing so.