If you want to increase the tax-paying economy without causing pain, the secret is incentives. India faces the same problems which affected Greece, but on a much larger scale. Businesses are paid in cash, and do not declare their earnings or pay appropriate tax. The solution in Europe was to require receipts for each purchase, but this law was often ignored. What was used instead was a temporary incentive, if a person collects receipts for everything they buy, they can get an income tax discount. The government loses some tax revenue in the short term, but gains visibility of payments to tax other businesses and individuals.
Collecting receipts is an enormous task, and I do not recommend this. India does not have the infrastructure for tax-system receipts, and even in Greece it was a labour intensive system. As the Indian government has recognised, cashless is the answer, providing visibility of transactions with no additional paper documents.
Unfortunately I believe India has taken the wrong approach to achieving a cashless economy, using the stick not the carrot, cancelling people's money, using threats. It can actually cost businesses more to use card payments, and I read that it can cost more to buy petrol with card. After the introduction of GST (goods and services tax) this difference will be even higher. It is the opposite of an incentive, it's a disincentive, this is a punishment for using card payment. The temporary reduction in fees at petrol stations is insufficient, barely 2 months? What you need is to make using card the cheaper way to pay, and usage will quickly increase. To do this provide an incentive for card use.
For each income-tax paying consumer, refund 20% of the tax paid for each rupee paid by card or electronic method. For example this would reduce an effective tax rate of 30% to 24%, but only for traceable money. I believe in India the tax on the lowest bracket has been lowered from 10% to 5%, but without any condition of cashless spending!
If cashless does increase the money lost in any incentive will come back to the government anyway. Each business will need to prove it's outgoings to avoid tax on profit becoming tax on revenue, and so it will need to pay people and suppliers electronically. This means more people now have traceable payments. More people will want to pay by card. This will make consumers really demand (not forced) card payment to each business. The tax discount will give consumers the feeling of a benefit, more money in the pocket, while vastly increasing the tax revenue.
I am an engineer, I see a system, and I try to fix the system using the minimum effort.
Collecting receipts is an enormous task, and I do not recommend this. India does not have the infrastructure for tax-system receipts, and even in Greece it was a labour intensive system. As the Indian government has recognised, cashless is the answer, providing visibility of transactions with no additional paper documents.
Unfortunately I believe India has taken the wrong approach to achieving a cashless economy, using the stick not the carrot, cancelling people's money, using threats. It can actually cost businesses more to use card payments, and I read that it can cost more to buy petrol with card. After the introduction of GST (goods and services tax) this difference will be even higher. It is the opposite of an incentive, it's a disincentive, this is a punishment for using card payment. The temporary reduction in fees at petrol stations is insufficient, barely 2 months? What you need is to make using card the cheaper way to pay, and usage will quickly increase. To do this provide an incentive for card use.
For each income-tax paying consumer, refund 20% of the tax paid for each rupee paid by card or electronic method. For example this would reduce an effective tax rate of 30% to 24%, but only for traceable money. I believe in India the tax on the lowest bracket has been lowered from 10% to 5%, but without any condition of cashless spending!
If cashless does increase the money lost in any incentive will come back to the government anyway. Each business will need to prove it's outgoings to avoid tax on profit becoming tax on revenue, and so it will need to pay people and suppliers electronically. This means more people now have traceable payments. More people will want to pay by card. This will make consumers really demand (not forced) card payment to each business. The tax discount will give consumers the feeling of a benefit, more money in the pocket, while vastly increasing the tax revenue.
I am an engineer, I see a system, and I try to fix the system using the minimum effort.
No comments:
Post a Comment