Why the Indian Tax System Remains Complex and How Simplification Can Help

Many argue that the Indian tax system is the most complicated globally. A primary reason is the fragmented nature of taxation, which includes business, citizen, and Non-Resident Indian (NRI) taxes. However, some suggest that a uniform and straightforward tax levy could solve these issues. This article examines the intricacies of the current tax system, discusses its complexity, and suggests a simplified approach to modernize and simplify it.

Current Tax Complexity and Its Origins

The complexity of the Indian tax system is often attributed to a 100% ignorance among the IAS and IRS administrations, from the top down. These officials are said to be mere copies of the British intelligence system. This inherited complexity often leads to a difficult understanding for taxpayers, making it challenging to navigate and comply with tax laws.

Despite this complexity, it is important to note that tax systems worldwide have their complications. India's tax system is no exception. It requires careful reading and interpretation, especially for tax calculations and liabilities. Unfortunately, the real issues often get overshadowed by rumors and misconceptions that further complicate things for taxpayers.

Labor Market Considerations

Another reason cited for the complexity is the employment of accountants. It is argued that a simpler tax system would provide fewer job opportunities for accountants, leading to job losses. However, simplifying the tax system could also lead to more efficient and effective tax administration, which could generate employment in other areas of financial services.

Is Complexity a Tool for Control?

Some believe that the complexity of the tax system is a deliberate strategy to control and manage the population. The author suggests that taxes are not income to a money creator and that money is created at no cost by funding national programs. This complex web of taxes might be a way to hide the true source of money generation, which has shifted from taxes to fiscal deficits post-1971. The mention of figures like MMS Chidambaram and Jaithely highlights that the true nature of tax systems is often hidden and not fully understood by the common taxpayer.

Similarly, in the United States, tax systems are often as complicated as in India, following the Chicago school of economics. This further emphasizes the need for simplification across tax jurisdictions.

The Path to Simplification

While the current tax system is complex, its complexity has grown due to tax avoidance and evasion strategies. Over time, tax authorities have found new ways to combat these practices, leading to an increasing level of control and paperwork. Therefore, simplification is not just about reducing the number of taxes; it is about creating a more transparent, user-friendly, and straightforward system that is easier for citizens to understand and comply with.

A simplified tax system would not only reduce administrative costs but also make it more equitable, ensuring that lower-income individuals do not feel unduly burdened by the tax system. Implementing a single, straightforward tax rate could help address this concern.

Ultimately, simplification is about ensuring that the tax system serves its primary purpose: generating revenue for the federal government and supporting national programs without unnecessary complexity.

In conclusion, while the current Indian tax system is complex, simplification is a feasible and necessary step towards ensuring greater transparency and fairness. By understanding and addressing the root causes of this complexity, policymakers can work towards creating a tax system that is easier to navigate and administer, benefiting both taxpayers and the government.