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Friday, Sep 17, 2004

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India's income-tax system is complex and complicated. Unscrupulous elements exploit the system to evade tax and hoard black money which is definitely a curse on the economy.

The Finance Minister, Mr P. Chidambaram, who is bold and innovative should think of bringing about radical reforms in the field of personal taxation.

One such measure could be the abolition of income-tax on individuals. The suggestion is worth mature consideration, notwithstanding that it may prima facie sound outlandish. Further, other countries have either not tried the step so far or, having tried, been not very successful in putting it into practice.

Statistics show that in the country even today only a couple of lakhs of individuals pay income-tax and many manage to be out of the tax net.

If personal taxation is done away with, black money hoarded by individuals will come into the open and become part of the public flow of funds. Besides, there will be no generation of black money by individuals.

The income-tax administration can be trimmed, and the surplus staff can be gainfully deployed elsewhere. Of course, the Finance Minister will have to find ways and means of effectively raising funds from alternative new sources, such as expenditure tax, to offset the loss of revenue on account of abolition of personal taxation.

To begin with, the Finance Minister may consider appointing a committee, perhaps under the chairmanship of Dr Vijay Kelkar to examine the basic question as to whether the abolition of personal taxation is feasible and if so, how best to tackle the consequent problems and go forward.

N. Ganga Ram


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