June 19, 2006
Raw deal
A friend of mine has this habit of verifying the dinner bill (check, when the waiter speaks in English) once in a while. Surprisingly, quite a few times he hits an anomaly. The rate has been so high that it warrants verification of every bill. Once, after pointing the error, he said, "We tend to be so careless about these things. This is all fallout of the high disposable income, where we really don't care if the bill is Rs 634 or Rs 674." I nod in agreement with a sense of guilt.
I read about how the credit card companies rip the customers by adding charges for an insurance scheme which the card holder didn't even apply for. People immediately raise their voice, call up the customer care number few times (matter never ends in a single call) to ensure the charges get cancelled. Then they put it on blog, forward the same to millions of friends, and ask them to forward their zillions of friends.
Now, there is one company whose services everybody subscribes, voluntarily or involuntarily. Actually, very few have what the company's services are even though lots of them have read the shining prospectus. The company charges really large sum for its service which everybody pays up religiously. But, the company fails to deliver on its promised services, time and again, and I hardly see anybody complaining about. Any quick guesses about this company? It is called Government. And, the arm of the company which collects the charges is called Income Tax Department. The other cousins of this department being Customs, Excise, Service Tax department. But owing to the limitation of my grey cells to handle complexity, let's assume all these to be a single entity.
Every year, the salaried employees pay up their income tax honestly. Actually, that "honest" part is little deceiving. They have no room to be dishonest as the company deducts the tax before handing over the salary. It is called Tax Deduction at Source or TDS.
Take a look at the India's richest people list, published by the international magazine specializing the world's wealth. Or India's highest paid executives, published by business magazines. Now, check the list of India's highest tax payers. While you'll find the business tycoons in the first list, CEOs/promoters in the second list, the third list has people from entertainment industry. Shahrukh Khan, Amitabh Bachchan, Aamir Khan have been highest tax payers in recent years. Logic is simple. Like salaried class, even the actors/actresses have very little to hide. The number of movies Shahrukh acted in, how many ads Amitabh has done is the data available in public domain for everybody to scrutinize.
How does this money collecting agency treat everybody?
Large software services players try to get more business out of same clients as signing up a new client is much harder than getting more business from the existing clients. I think, they call it "mining the existing customers." Income tax department does the same. A list of "honest" tax payers is now available. Now, start extracting more out of them. Ask them to file a complicated "Saral" form to check what they are doing with their money AFTER they have paid taxes. Send 40 notices in six months to a Bachchan family asking clarifications about their properties, investments and sun glasses. Ask Mr Bachchan if he is an actor or an anchor in the KBC game show, never mind he is fighting for his life in the hospital.
As if that is not enough, there are ads from the agency in the newspaper almost every day from last year. The tone of the ad sounds similar to the "recovery agents" from various banks and credit card companies. One particular ad published during Diwali was something to the effect - "If you don't pay your taxes, we'll ensure, all you see this Diwali is darkness." The same ads are laced with sermons preaching high moral standards - "There is a sense of relief and pride when you fulfill a commitment to your country and its future by paying tax honestly in time."
And, what about those who evade taxes? Well, it is really hard to figure out who is evading taxes as, in all probability, they have employed best brains for this activity. What justification do I have for the statement that there are tax evaders? As on March 2005, as per income tax department, there were 85,000 individuals who have declared their annual income to be higher than 10 lakhs. In another report published in June 2005, there are 70,000 with networth of US$ 1 million or more. That is, while there are 85,000 people with income higher than Rs 10 lakhs, there are 70,000 people with wealth of Rs 4.5 Crores! You see the chasm, right?
Actually, I need not to be so verbose to prove my statement. There is ample proof available already. Current Finance Minister Mr Chidambaram had, in his earlier avatar, launched a scheme called Voluntary Disclosure of Income Scheme or VDIS. To put simply, it was a Govt sponsored amnesty scheme to convert "Black" money to "White." That is, the source of that money need not be disclosed. Just pay up the 30% tax, rest 70% is yours. Legally. No questions asked. 4,66,031 people declared their wealth to the tune of Rs 33,000 Crores and Govt netted around Rs 10,000 Crores. Let's not ask hard questions like where those Rs 23,000 Crores went. I suppose, North Block is working on Version 2.0 of the same.
Government's creative policy decisions make sure that the kitty always keeps on growing at super-linear pace. A sample of decisions include increasing service tax from 8% to 12% in two years, to be increased to 20% in next few years, 2% education cess, and bringing more services in tax net. One may wonder, why doesn't the Govt outsource the job of tax collection? Well, if this department is outsourced, how can one play the game of vendetta with only other investigating agency.
Now, we all have been paying a hard-earned, small fortune for this company's services. Recollecting what services I am being offered, sends my brain into tizzy. A few quick and easy things comes to my mind. The right to choose who will (mis)manage this coffer. The freedom to express my thoughts and rant about it openly. There are minor things like pathetic infrastructure, etc. If I complain about it, then there is very little left for the industry captains to talk about. I can't think any harder.
We, the "honest" (as defined above) tax payers are getting a raw deal. Now, that is bad enough. But, there is worse. We can do very little (read nothing) about it. We cannot call up a 1600 number and scream at them about their pathetic service and ask them to cancel the service then and there.
PS: Trying tagging for the first time.
Technorati Tags: India Tax
I read about how the credit card companies rip the customers by adding charges for an insurance scheme which the card holder didn't even apply for. People immediately raise their voice, call up the customer care number few times (matter never ends in a single call) to ensure the charges get cancelled. Then they put it on blog, forward the same to millions of friends, and ask them to forward their zillions of friends.
Now, there is one company whose services everybody subscribes, voluntarily or involuntarily. Actually, very few have what the company's services are even though lots of them have read the shining prospectus. The company charges really large sum for its service which everybody pays up religiously. But, the company fails to deliver on its promised services, time and again, and I hardly see anybody complaining about. Any quick guesses about this company? It is called Government. And, the arm of the company which collects the charges is called Income Tax Department. The other cousins of this department being Customs, Excise, Service Tax department. But owing to the limitation of my grey cells to handle complexity, let's assume all these to be a single entity.
Every year, the salaried employees pay up their income tax honestly. Actually, that "honest" part is little deceiving. They have no room to be dishonest as the company deducts the tax before handing over the salary. It is called Tax Deduction at Source or TDS.
Take a look at the India's richest people list, published by the international magazine specializing the world's wealth. Or India's highest paid executives, published by business magazines. Now, check the list of India's highest tax payers. While you'll find the business tycoons in the first list, CEOs/promoters in the second list, the third list has people from entertainment industry. Shahrukh Khan, Amitabh Bachchan, Aamir Khan have been highest tax payers in recent years. Logic is simple. Like salaried class, even the actors/actresses have very little to hide. The number of movies Shahrukh acted in, how many ads Amitabh has done is the data available in public domain for everybody to scrutinize.
How does this money collecting agency treat everybody?
Large software services players try to get more business out of same clients as signing up a new client is much harder than getting more business from the existing clients. I think, they call it "mining the existing customers." Income tax department does the same. A list of "honest" tax payers is now available. Now, start extracting more out of them. Ask them to file a complicated "Saral" form to check what they are doing with their money AFTER they have paid taxes. Send 40 notices in six months to a Bachchan family asking clarifications about their properties, investments and sun glasses. Ask Mr Bachchan if he is an actor or an anchor in the KBC game show, never mind he is fighting for his life in the hospital.
As if that is not enough, there are ads from the agency in the newspaper almost every day from last year. The tone of the ad sounds similar to the "recovery agents" from various banks and credit card companies. One particular ad published during Diwali was something to the effect - "If you don't pay your taxes, we'll ensure, all you see this Diwali is darkness." The same ads are laced with sermons preaching high moral standards - "There is a sense of relief and pride when you fulfill a commitment to your country and its future by paying tax honestly in time."
And, what about those who evade taxes? Well, it is really hard to figure out who is evading taxes as, in all probability, they have employed best brains for this activity. What justification do I have for the statement that there are tax evaders? As on March 2005, as per income tax department, there were 85,000 individuals who have declared their annual income to be higher than 10 lakhs. In another report published in June 2005, there are 70,000 with networth of US$ 1 million or more. That is, while there are 85,000 people with income higher than Rs 10 lakhs, there are 70,000 people with wealth of Rs 4.5 Crores! You see the chasm, right?
Actually, I need not to be so verbose to prove my statement. There is ample proof available already. Current Finance Minister Mr Chidambaram had, in his earlier avatar, launched a scheme called Voluntary Disclosure of Income Scheme or VDIS. To put simply, it was a Govt sponsored amnesty scheme to convert "Black" money to "White." That is, the source of that money need not be disclosed. Just pay up the 30% tax, rest 70% is yours. Legally. No questions asked. 4,66,031 people declared their wealth to the tune of Rs 33,000 Crores and Govt netted around Rs 10,000 Crores. Let's not ask hard questions like where those Rs 23,000 Crores went. I suppose, North Block is working on Version 2.0 of the same.
Government's creative policy decisions make sure that the kitty always keeps on growing at super-linear pace. A sample of decisions include increasing service tax from 8% to 12% in two years, to be increased to 20% in next few years, 2% education cess, and bringing more services in tax net. One may wonder, why doesn't the Govt outsource the job of tax collection? Well, if this department is outsourced, how can one play the game of vendetta with only other investigating agency.
Now, we all have been paying a hard-earned, small fortune for this company's services. Recollecting what services I am being offered, sends my brain into tizzy. A few quick and easy things comes to my mind. The right to choose who will (mis)manage this coffer. The freedom to express my thoughts and rant about it openly. There are minor things like pathetic infrastructure, etc. If I complain about it, then there is very little left for the industry captains to talk about. I can't think any harder.
We, the "honest" (as defined above) tax payers are getting a raw deal. Now, that is bad enough. But, there is worse. We can do very little (read nothing) about it. We cannot call up a 1600 number and scream at them about their pathetic service and ask them to cancel the service then and there.
PS: Trying tagging for the first time.
Technorati Tags: India Tax
2
Comments:
That's because most of the richest indians' wealth is on paper and hence long-term investment and hence tax rebates.
Secondly, richest indians also hire smart money managers to 'manage' their wealth well. That a Shahrukh khan 'need' not be doing.
But I see your point.
Secondly, richest indians also hire smart money managers to 'manage' their wealth well. That a Shahrukh khan 'need' not be doing.
But I see your point.
For a moment, let's assume that richest Indians just have paper wealth. But what about the promoters/heads of large companies? Last year, Mukesh and Anil Ambani both received compensation of Rs 21 Crores each. Same case with promoters of Ranbaxy, Hero Honda, and few other companies.
Also, the promoters receive sizeable money through dividends, which is tax free. (The company has to pay 12.5% dividend distribution tax. so it is accounted in Company's books.)
Shahrukh Khan must be having a good money manager. But the rules are such that his taxable income remains high and money manager can do little about it.
It boils down to a set of rules which determine how much (or little) tax you pay.
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Also, the promoters receive sizeable money through dividends, which is tax free. (The company has to pay 12.5% dividend distribution tax. so it is accounted in Company's books.)
Shahrukh Khan must be having a good money manager. But the rules are such that his taxable income remains high and money manager can do little about it.
It boils down to a set of rules which determine how much (or little) tax you pay.
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