Few days back I was having discussion with my friends and issue of
Baba Ramdev's wealth came up questions were raised way Baba Ramdev's wealth
should be exempted from Income Tax. Before taking up the issue of exemption
from Income Tax I would like to explain why government is allowed to impose
Taxes on the people.
In a country where
income is uniformly distributed government don't need to impose any Tax because
government don't need to run social services like Free Schools, Free Hospitals
etc. because all people can pay for their expanses and government can recover cost
of providing services from users. Government need very little Tax in this case
for the expanses of Army for protection of country.
I will discuss
taxes imposed by the government one by one and discuss their purpose one by
one.
Income
Tax
In a country where 90% of total income is held by 9% of people and
9% of income is held by 90% of the people and 1% of people holding 1% of the
income. 9% of the people are having income 10 time of national average (90%/9%)
and 90% of people having income 1 tenth of national average income. It becomes
government’s responsibility to provide Free Schools and Free Hospitals to 90%
of the people. For doing this Government needs lots of funds. 10% of total
national income will not be surplus. Government can't recover this cost from
people who are having income 1 tenth of national average so government impose
tax on 90% of the national income held of 9% of the rich people.
Imposing a tax of 10% on income above national average will yield
8.1% of national income because 9% of the income of richer 9% was exempted from
Income Tax and only 81% of national income is taxed. In India where national
average income is 20000 per year per person, average income of 9% of rich
people comes to be around 2 Lakhs per year. But government is keeping tax free
slab to 2.5 Lakhs per person for income tax. It is because in India income
distribution is even more uneven and 1% of people are having 50% of total
national income which is coming at 50 times of national average income (50%/1%).
In India where average national income is 20,000 per year income of 1% of the
richest people comes to be around 10 Lakhs per year.
As per current income tax rules income below 2.5 Lakhs is tax
free, income above 2.5 Lakhs is taxed at 10% and Income above 5 Lakhs is taxed
at 20%. The tax for 10 Lakhs
comes to be around 1.25 Lakhs which is 12.5% for the income of richest 1%
population of India. Taxing 50% of national income at 12.5% will yield 6.25% of
total national income as Income Tax.
I would like to emphasis once again on fact that although this tax
is not exorbitant from any standard the government is allowed to collect this
tax only on promise that this money will be used in providing services to 90%
of lesser privileged people of the country. If government can't do that it has
no right to collect taxes. I
will like to say once again that 1% of people holding 50% of total national
income have their duty toward lesser privileged people of their country and
must not resort to tax aversion on the pretext that government is corrupt. If a
government is corrupt then why don't these 1% of the rich people start their
own initiative to help poor people of the country?
Wealth
Tax
When wealth distribution in the country is uneven and large amount
of wealth is held by a very small people of the country then government resort
to wealth tax. Here also principal of taxing richer people for welfare of poor
people is applied and personal property of people having 50 times of national
average property is taxed. Community property which belongs to thousands or
lakhs of people is not taxed because per person property value is very less and
does not come in taxable limits.
The purpose of this tax is to reduce disparity in society and
government have right to collect this tax only for welfare of people.
In India Wealth Tax is imposed on property more than 30 Lakhs in
term of Gold, or Immovable property where house tax is not applicable. Property
where house tax is applicable is not counted towards Wealth Tax.
Inheritance
Tax
This one of the illegal tax which is imposed by some countries to
extort money from poor descendant of the property. If government thinks that
property value was very high and needs to be taxed then it should be taxed as
Wealth Tax and not at death of a person. If we assume that a new generation
will take over property from older generation every 30 years then taxing
inheritance at 30% will yield same result as taxing 1% per year as wealth tax.
Inheritance tax is inhuman in most of the situations. For example
if a person receives a house in which he is living as inherited property. He
will be forced to sell that house to pay Inheritance Tax.
In India inheritance tax was abolished in 1985.
Excise
Duty
When government can't get enough money from Income and Wealth Tax
due to high tax aversion and low tax rate then government resort to indirectly
taxing spending of 1% rich people of the country. Excise duty is imposed on the
goods manufactured in the country. Different commodities are taxed at different
rates luxury items like cars and cosmetics is taxed at higher rate and
essential commodities are either tax free or taxed at very lower rate.
Here also I would like to stress on the fact that government is
allowed to tax rich people only for welfare of poor people.
Sales
Tax
Sales tax is imposed on sale of commodities for covering of
deficit of tax collection from other taxes. Here also luxury items are taxed at
higher rate and essential commodities like food grains, books is kept tax
free.
Investment instruments are either tax free or taxed at a very low
rate. Securities traded in stock exchange are taxed at rate of 0.1% and gold
items are taxed at 1.01%.
Stamp
Duty
Stamp Duty is imposed on items on which sale tax is not applicable
like sale of house or land. Here also same principle of taxing low on
investment instrument and essential commodities needs to be applied.
A house can be classified either an essential commodity or
investment instrument and can never be classified as luxury items. But
unfortunately government has resort to impose stamp duty of 10% on house purchase
which is illegal from the point of justice. Maximum stamp duty which should be
imposed on sales dead should be equal to sale tax on gold which is 1.01%.
House
Tax
House tax is imposed on people for up keeping of services like
sanitation of the locality. It is more of a service charge than a tax. It is
imposed for services which is provided to payer of the tax rather than for the
welfare of poor people.
Water
and Electricity charges
Water and Electricity charges the levied on people for up-keeping
of facilities which people are consuming.
Exemptions
There are some exemptions granted when people spend money directly
on the purpose for which government is collecting tax. In that case any money
given to organization who are spending their money on welfare of people is
exempted from income tax because government have no right to tax money spent on
providing medical facilities. That is why any money donated to organizations
involved in providing medicines and education to poor people is exempted from
income tax under section 80G.
These organizations who work for welfare of people also need to
build some physical assets which are having monetary value from money received
as donation for purpose of providing services to poor people. If I want to provide medical
facilities to 10 lakh people I can't do it from one 10x10 room. I will
have to purchase land and build a big hospital for doing that. I need to do all
this from money received as donation for providing free medical facilities to
people because I am building these assets for providing facilities to poor
people and I don't see any reason why donation money used for purchasing land
and building hospital for providing medicines to poor people to be taxable.
If the organization running hospital for poor people also runs a
small business of producing medicines and spend all income received from that
business for welfare of poor people then I see no reason why that income should
taxed.
Baba Ramdev is running an organization which is involved in providing
free medical facilities to lakhs of people. For doing that he had to purchase
land and build hospitals. He runs a small business of selling medicines and
profit made by this business is donated to hospital run by Baba Ramdev for
welfare of poor people. I don't see any reason why his income should not be tax
free.
It is not that money made by teaching yoga is tax free and money
made teaching aerobics is taxable. It is based on what the money received is
spent. If it is spent on someone's personal pleasure then it is taxable and if
it is spent on social welfare of people it is tax free.
Some people say stat Baba Ramdev is having property worth 1000
crore and if he had made 1000 crore then he should have paid tax of 300 crore
also. I would like to say that this property belongs to the social welfare organization
which Baba Ramdev is running and it is not Baba Ramdev's personal property.
This property is required for providing free services to poor people and
without this property services to poor people cannot be provided.
