Gagan Kumar, recognised as India’s leading Corporate tax lawyer by The International Who’s Who Legal in 2012, believes that Goods and Services Tax (GST) is going to be a game changer but also adds that those who handle taxpayers’ money have to spend it for society.
In an interview with Keshav Makkar, Gagan shares his views on the Indian Tax System.
Edited Excerpts from an interview
Why is there such a low percentage of taxpayers in India?
A major chunk of the population remains dependent on agriculture and the desirable income outside tier I and tier II cities is not significant. Considering this heavy dependence on agriculture, the tax base of the country is very small and out of that the actual number who pay up even smaller.
How beneficial is our tax system for our countrymen?
Our tax system is as good or as bad as of any other developed country. However, what plagues it is the manner of enforcement. We continue to have the hangover of the pre-independence era and neither the populace nor government officials have changed their mindset: the continuous struggle between the populace and tax authorities continues. What this country needs to do is to change the mindset not only of taxpayers but of tax collectors — and more importantly, of the people who spend taxpayers’ money on welfare projects.
What reforms do we need to put minimum pressure on taxpayers?
The biggest reform we need is not with regard to tax rates. Our tax system and tax laws should be completely clear as what would be taxable and what would not be taxable. Only then can a businessman organise himself properly.
What, according to you, is the main cause of tax evasion in our country? How can we eliminate it?
To my mind, the main cause of tax evasion is the poor implementation of various welfare schemes by the authorities who are entrusted with spending the taxpayers’ money. Considering the fact that such authorities hold taxpayers’ money in trust, the same should be spent wisely and corruption should be eliminated while making disbursements for welfare schemes.
Should the middle class be given some more tax concessions?
The current tax structure leaves out a major chunk of society who are doing business in the unorganised sector; despite making a good amount of money, they do not pay taxes. The system of Tax Deducted at Source (TDS), puts the burden on the salaried class. In that sense, one may argue that the current tax structure is a burden on the middle class.
How should the tax structure deal with black money holders?
The present government is coming down very harshly on people holding black money. Under the present law as well, it can be taken as a criminal offence. As I said earlier, the enforcement of such law against people would certainly act as a major deterrent for taxpayers who have not been paying their fair share of taxes, thus burdening the middle class in particular and depriving the poor in general.
What should everyone know about GST?
Goods and Services Tax (GST) is going to be a game changer for the collection and levy of indirect taxes. It will subsume all kinds of indirect taxes, excluding customs duty, into one tax. The aim of GST is to reduce the cascading effect of taxes, thereby leading to a reduction in effective cost or service.
Why should GST be brought into existence and how can it help in improving the tax system?
It is expected that GST would bring down the effective cost of goods and services. It is being contemplated that after the implementation of GST the various states will not have differential tax rates regime.
How does our political system affect our tax structure?
The parliamentary system has inbuilt checks to ensure that no government is given arbitrary powers to create or modify laws. While the current battle for supremacy in the Rajya Sabha is purely political, it cannot be denied that in principle all political parties agree that implementation of GST is need of the hour.
Finally, Is our system more complex than other countries’?
In my experience of working with various experts from various developed as well as developing countries, I do not believe that our system is complex than theirs. However, the difference lies in the transparent manner in which tax authorities deal with taxpayers and the clarity tax laws provide.
(The reporter is an intern with Tehelka)