Mains Marathon

Answered: Mains Marathon – UPSC Mains Current Affairs Questions – February 2

1.India is a largely non-tax compliant society. Discuss the reasons behind the given statement. List measures taken by the government to bring in better tax compliance. What innovative measures would you suggest to improve tax compliance? (GS 3)

भारत में एक बड़े पैमाने पर गैर-कर अनुरूप समाज है। इस बयान के पीछे के कारणों पर चर्चा करें। सरकार द्वारा किये गए उपायों को बेहतर बनाने के सुझाव लिखें। आप किस अभिनव उपाय का सुझाव देंगे?

Suggested Answer:

In India, only 7 out of every 100 voters pay taxes. This is pitiable as compared to developed economies. For example, in Norway and Sweden, more than 95% of all voters pay taxes.

Indians are largely a non-tax compliant society because:

  1. Paying taxes is seen as a burden instead of a duty towards nation building.
    2. Nearly 90% of the population works in the informal sector. Most of these people are out of the tax ambit, and under-reporting is rampant in this sector. Shop owners etc underreport their incomes in order to escape the tax net.
    3. High volume of transactions in cash – which again leads to no paper trails, making it easier for people to evade taxes.
    4. Populist measures like raising tax slabs in the budget speech, which further narrows the tax base.
    5. Rampant corruption among the tax officials, which lets the evaders go scot free after paying bribes.
    6. Double Taxation Avoidance Agreements with tax havens such as Mauritius, which provide legal opportunities for companies to shift their profits to lower tax jurisdictions.
    7. Plethora of exemptions to companies, in order to boost enterprise. It is estimated that although the corporate tax rate was 30%, an average MNC paid a tax of ~23% with exemptions.
    8. Loopholes in and complexity of Income Tax laws, which incentivize evasion as well as discourage compliance amongst the citizens.
    9. Agricultural income is non-taxable. Nearly half the population depends on agriculture and allied activities. This automatically excludes them from the tax ambit. Moreover, it is misused by absentee farmers to evade paying taxes on their other sources of income.

Measures taken to increase tax compliance:

  1. Mandatory seeding of bank accounts with PAN, stringent KYC norms and Aadhaar seeding for easy traceability.
    2. Reduction of corporate tax rates for MSMEs from the existing 30% to 25%. Roadmap to lower overall corporate tax to 25% by 2019.
    3. Demonetization and the resulting push towards digital and cashless transactions. Ban on all cash transactions above Rs. 3 lakh.
    4. Revamping the India-Mauritius DTAA in order to prevent round tripping as well as profit shifting.
    5. GAAR will be implemented from 2018. This is in sync with G-20’s BEPS framework for tackling transborder tax evasion.
    6. Recommendations of Parthasarthy Shome panel for simplifying the tax laws are under consideration.
    7.  Revamping labour laws and improving Ease of Doing Business to increase formal sector jobs and thus the tax base.
    8. Digitization of tax assessment and lesser discretion to IT officials, to curb corruption.
  2. Shutting out avenues of black money generation with stringent Real Estate Act, Benami Properties Act etc. Income Disclosure Scheme was launched wherein people could disclose their undisclosed income without any fear of prosecution in lieu of penalty.
    10. Implementation of GST to bring in greater transparency, predictability and compliance with respect to indirect taxes.
    11. Project INSIGHT, SAKSHAM etc in order to leverage technology and nab tax evaders.
    12. Strengthening the Serious Fraud Investigation Office and the Enforcement Directorate.
    13. Increased disclosure norms for p-notes, which accounted for nearly half of FDI in 2007-08, and are a major conduit of round-tripping.

Innovative measures to increase tax compliance:

  1. Behavioural change must be engendered. A ‘nudge unit’ to do this with respect to paying taxes must be made functional.
    2. Simply providing prompt services in a time-bound manner can repose the citizens’ trust in the system and motivate them to pay taxes. At present, people don’t pay taxes because they perceive their hard-earned money as entering the pockets of corrupt bureaucrats and politicians.
    3. Simplifying the tax structure and encouraging the community approach to taxpaying, similar to community-led total sanitation campaigns. “Kar mitra (tax friend)” on the lines of Swachhata doot can also be instituted.

India’s direct-indirect tax collection ratio is at 35:65, exactly opposite to the OECD average of 65:35. Along with increasing compliance, there is therefore a need to increase progressive taxation by increasing direct taxes and reducing indirect taxes, since the latter disproportionately affect the poor more. Greater tax compliance is a sine qua non to achieve fiscal democracy as well as economic justice.

2.The Battle on black money cannot be complete as long as Benami property is not brought under the tax and assessment scanner. In this context, discuss the need for e-property passbook. (GS 3)

काले धन पर तब तक काबू नहीं पाया जा सक्ता जब तक बेनामी संपत्ति को लागु नहीं किया जा सक्ता। इस संदर्भ में, ई-पासबुक संपत्ति की आवश्यकता पर चर्चा करें।

Suggested Answer:

Black money is the money that is generated due to transactions that go unrecorded and are thus delinked from the formal financial channels. World Bank estimates the size of India’s shadow economy (run on black money) stood at nearly 23% of India’s GDP in 2013.

Benami property, as the name suggests, is a property that is not bought in the name of a person who actually pays for it. Real estate is one of the most fertile sectors for generation as well as investment of black money, since it is not regulated and it does not have the logistic problems faced by other avenues of black money generation such as cash hoarding and gold.

Benami Transactions Act was recently amended and it defines benami properties, prohibits them, provides for heavy fines and imprisonment for those involved, and gives government the power to confiscate the property without payment of compensation. The names in which these properties are bought are usually a relative or even some fake identity. Real owners of these properties are hard to trace.

An e-property passbook (EPPB), if introduced, will serve the following purpose:
1. It will lead to compulsory registration of all properties throughout the country, making it easy to find owners of multiple properties and correlate their known sources of income.
2. Will provide certainty to buyers as well as sellers and act as a de-facto ownership title. However, properties which are sub-judice might not get listed.
3. Will deter people from buying property with black money and thus check black money circulation from real estate.
4. Will lead to confiscation in case of non-registration, thus immediately bringing criminals under the radar. Also, the owner would have to remain physically present during registration. Clicking a photograph at the time of registration would help identify those with disproportionate assets more easily.

EPPB is a good concept, especially when coupled with recent reforms such as the Real Estate Act and the Benami Properties Act. It will break the back of black economy in the country while reducing real estate prices and making real estate affordable for the common man.

3.The first step in the evolution of ethics is a sense of solidarity with other human beings.

नैतिकता के विकास में पहला कदम दूसरे इंसान के साथ एकजुटता की भावना है।

Suggested Answer:

Ethics is a set of values and rules that govern human behaviour. They help us delineate what is acceptable and unacceptable to the society at large, and shape individual morality. As John Donne aptly said, “No man is an island”. Humans need other humans to interact with, fulfil various needs and live life to the fullest. Ethics helps humans determine this behaviour.

Now, it is only natural that living a full life necessitates peace and security. That comes with trust in others. A social bond is sealed when that trust is, in turn, reposed in us by others. For this trust to foster, a human being needs to develop an understanding that the others humans are a part of one large familyVasudhaiv kutumbakam.

Thus, the first step of ethical development – rules that govern behaviour – has to be to develop this aforementioned understanding within humans. Solidarity refers to this very quality – the belief that a person and other persons elsewhere have similar interests and are similarly placed. Though divided by artificial barriers of race, caste, creed, gender, ethnicity, nationality, and ideologies, the humans are united with a fundamental quality – that of life and it is ethics which help achieve the basic purpose of life: living, in solidarity with other human beings.


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