The power of One: Tax Reforms

I was reading an article debating various levels of GST taxation that should be applied for a particular set of products. And I thought, what a waste of energy and time. Not just this in case but, in general, an average human being constantly worries about tax and looks for ways to optimize.

What a national level waste. What if that time was utilized in some productive work, would it lead to better outcomes?

After some thought, I feel that simplifying taxation should increase GDP because tax is simple and easy to pay, not everyone needs to do it and not everytime.

What I, therefore, propose is to have one tax (for domestic trade only). Turnover tax. As the name says, it is a tax that needs to be paid on turnover of a business. Irrespective of the profits or sales. Think of it like a tax that the country asks you to pay because you want to do business in that country. Same as office rentals which need to be paid whether or not the company makes money eventually.

All the other tax abolished, including direct and indirect. It frees up majority of the population on salary / not running a business. They can spend that extra time on doing more and productive work which eventually leads to more growth and more consumption which is directly to national GDP growth.

When the tax is on turnover which is what every company aims to grow, then at the nation level every interest is aligned. The government assists them to grow, they grow and pay more tax, and the country shows more growth. All are happy.

Scenario 1:

The current total tax collection in India is Rs. 22L crores and the GDP Rs. 220L crores. So, approximately 10%. Let us say, the turnover tax is kept at 15%. The tax collection reaches Rs. 33L crore. The country’s workforce additional time can increase 1–2% additional GDP growth thereby putting India on a faster trajectory to reach $10tn

Which brings me to the second point — Tax Scrutiny

The current tax authority faces a shortage of staff to check all files and therefore tax demands are delayed, sometimes retrospective, and all this complications lead to mistrust and uncertainty.

To solve this, tax discrepancy (and evasion) and collection should be outsourced to private companies. Simple laws on evasion to be made and penalties defined. APIs should be made available for private companies to access company returns and based on the evasion laws and penalties, these companies can (using sophisticated algorithms including AI & ML) figure out cases where incorrect filings have been done and push the companies to either correct and pay the difference (if in time) or cough up severe penalties.

The companies that are able to get these penalties or corrected tax collections should get a cut of the total generation. This becomes their revenue which works at scale and solves two key problems ailing the tax department:

• Quick assessment of files due to lack of manpower
• Inefficient tax collections due to evasion and leakage

This move will not only help India beef up its tech stack but also foolproof its fin tech and establish India as a safe and transparent country to do business in, while at the same time giving a stern message to defaulters.

In our childhood, we saw this message of “Ek Chidiya, Anek Chidiya” where if the birds got together, they could achieve anything. Each Indian is that bird who, when together, can propel India to greater heights.

I understand that the above solutions sound utopian, may be they are. May be, we need a tax on asset trading (money & real estate) and also explore Customs Tax on international trade. May be there are more complex solutions required. But just think for a moment, may be they aren’t.

I am neither a tax expert, nor a lawyer but sometimes the right solutions come from people who do not know the limitations of a work and therefore end up doing it better than someone who understands the risks and pitfalls.