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A people-friendly tax system

Income Tax, one of the two certainties in life, since its coming into force in the mid 1930s in Sri Lanka, is uppermost in the mind of those who make money and intend to make more money. The State itself and its machinery survives on taxation without which it would not last long.

The people for whom the State administration is maintained are the happiest if they are to pay the least as taxes whether direct or indirect. However, they expect the most from the State unmindful of the fact that taxes in whichever form make them healthier and stronger both physically and mentally.

The State and its machinery survives on taxation

According to a recent press release, the Department of Inland Revenue intends introducing a people friendly tax system. Anyone reading it wants to find how a people-friendly tax system could be evolved with its inherent arrogant nature.

There could be a people- friendly tax system in which a tax-payer is free to pay whatever tax he seems to think is the correct tax.

In the area of taxation, people will be friendly only if they are not trapped in the tax net or accept the return with no questions being asked. Even if the Treasury is to scrape the bottom to meet the essential expenses, it is none of their business.

The taxpayers love the tax man if he is to accept whatever they say in respect of their income and expenditure. There is nothing unusual in it. It is the human nature. They do not like to part even with a part of their material earnings unless they are directly, materially or spiritually rewarded.

In the first instance, taxation whether direct or indirect is indispensable for planned development of the country and welfare of the people.

No organized State can survive without taxation whether payable in cash, kind or labour. Maintenance of law and order and provision of basic needs for the needy are two most vital areas where taxation goes direct into operation.

The general attitude to taxes whether of the rich or the poor is one of dislike and resistance.

Desire to amass and possess wealth is much deeper than the duty to part with a portion of earnings for the benefit of others who are unidentified entities.

Taxes one pays whether in millions or in thousands being not identified with the payer is a disincentive for payment of any direct tax. People love to identify themselves with their achievements.

As practised in India the names of the highest taxpayers should be highlighted, and given publicity with the amounts they pay as taxes because it gives them pride and are able to take credit openly and personally for 'donating' a portion of what they earn back to the people and the country. Then they even earn the respect of the people as well, for their identification among the elite in the society.

On the other hand, donations and sponsorships which are voluntary as opposed to tax which is compulsory entice the contributors easily because of recognition and publicity they get and the perpetuation of their name in public.

Sometimes, they turn to politicians for favours as well.

Honest tax-payers do not fall within this category. This human frailty should be understood and the Department should be made legally bound to release the names of the top taxpayers which would facilitate the people to treat such people as good, honest citizens. People believe that when they make a donation for charity they are rewarded here or hereafter which is an investment to get more.

However, taxes will vanish in a pool where the payer's identity is lost and it would not help him to gain additional material advantage.

Anonymity of a tax-payer which has made them to enjoy, is an incentive for both tax evasion and tax avoidance.

Response to indirect taxes is different from what it is to direct taxes. Indirect taxes are paid by every consumer whether big or small. Its burden in general is borne by the entire population although some very high indirect taxes have pushed some luxury items beyond the reach of ordinary man.

The rich who have enough resources do not mind paying a higher price because they know how to pass it on to the generality of consumers.

Therefore, they prefer indirect taxes to direct taxes because it is directly borne by the consumer. While the ordinary people grumble about indirect taxes, the rich grumble about direct taxes.

Why do people dislike or hate income tax? In the first instance, they think that what they have earned is rightly and totally theirs and it should be dispensed with only as they wish. Moreover, they believe that what they contribute to the Treasury is to promote incompetency and enrich others whose contribution to the country is almost nil; and they take the lead in wasting what they have earned the hard way.

If they are nationally identified for being the highest taxpayers, it would push them into a position of eminence as worthy citizens of the country. Sometimes, anonymity hurts them because they feel themselves as equal to the tax-dodgers with no recognition for their magnificent contribution to the State coffers.

Many of those who hate to pay tax are prepared to pay double the amount of tax or more in the form of bribes or commissions to known or unknown funds to get their programs pushed through. Why? Unlike payment of tax a bribe directly and immensely benefits the one who pays it. The whole nation being benefitted on payment of the correct tax does not matter for his designs.

No employee whether Government, corporate or private should be exempt from income tax on their employment income, if their salary plus perks exceed the tax exemption limit applicable to all others.

This discrimination is totally unnecessary as even the public servants who perform their duties as the private sector does, should be treated equally without allowing privileges to encroach in favour of the public sector.

There was a time when Government corporate employees too, had to pay income tax. Exemptions from tax should be exceptional and acceptable to those who are liable to pay taxes.

There are instances of some corporate employers who pay income tax in respect of the employment income of their employees being cheated by the employees themselves. This is another form of earning an employment income which the employees have made use of to claim a refund in respect of false or bogus claims made on account of their losses such as in agriculture.

The Government is the loser at both ends. Such losses should not be allowed as a deduction against a tax payment made to the Government by the employer.

What evades the tax net mostly is black money, unearned or undisclosed. This could come in the form of bribes, commission, ransom, santhosams etc. All ill-gotten money finds its way out of statutory recognition and flies into the hands of anti-social elements.

Offeror as well as the offeree maintains that 'silence is golden'. Sometimes, part of the income is left out by channelling it away from the books of accounts and records or sometimes it is fed into an overstatement of expenditure.

Unearned income as well as easily earned income goes mostly for drinking, gambling, drugs, slaughter houses, prostitution, bribes etc.

These are the areas into which what is left out of the tax net is gleefully pumped in thereby further deteriorating both social and moral quality of the people.

Exemption from tax and tax concessions should be exceptional, and it should be labour intensive or genuinely earning foreign exchange.

However, it should not be allowed to be an opening for tax evasion. Measures should be enforced to collect any tax in default. Otherwise it would be an injustice to the honest taxpayers who take pains to remit the tax within time.

Moreover, thereby the defaulters are placed at an advantage over those who pay the tax on time.

No tax amnesty should be given as some big time tax evaders eagerly await the periodical declaration of tax amnesty it is always declared under condition that no questions would be asked.

What a fortune for tax evaders. They love it because they enjoy the maximum advantage of tax evasion. They may be laughing at the honest taxpayers.

Declaration of a tax amnesty is one way of promoting tax evasion among those who look for ways and means for tax evasion.

To get every taxpayer to pay one's tax by cheque could be an effective step in combatting tax evasion. Some people use unearned money for charity and payment of taxes of which the former gives them a niche in heaven or one here itself. Who pays taxes out of love for the country? Most probably none.

Many taxpayers are inclined to understate income and overstate expenditure.

This is a human frailty determined by greed which binds man intensely to worldly comforts. A man who is not content with what he earns and yearns for more and more at the expense of all others will endeavour to minimize what he parts with specially when it gives him no direct spiritual or material satisfaction.

Loss in business is an outcome a businessman hates and laments; but if it is a loss in the tax return he is happy.

In the case of indirect taxes those who remit it to the Department act as custodians of the tax collected from the customers.

If it is not remitted within the stipulated time, it amounts to misappropriation of Government money which often happens today.

For some people it is an interest free loan payable at their will and pleasure.

So no taxpayer, mercantile or professional should worry over the taxes so collected the burden of which is actually borne by the customers, rich and poor alike.

A taxpayer is expected to come within an exclusive club within because he is the an honest custodian of public money paid to the Government through him which in turn is expected to be spent for the well-being of the people and the country.

Can tax ever be people friendly? No. Tax is an inevitable device legally framed to get a person to part with part of his or its earnings not for his benefit, but for that of the others.

Indirectly, he may be benefitted by way of defence and social welfare, but the others are benefitted directly.

Therefore, what the authorities should do is not to take pains to introduce a people-friendly tax system, but to make the Revenue officials from top to bottom to be friendly, cordial and polite to every taxpayer who comes to them or to whom they go.

The officers must be both friendly and firm. So the dream of a friendly tax system could end with realization of enlightened friendly taxpayers.

 

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