What if India has 0% Income Tax? | Dhruv Rathee
The abolition of Income tax is an idea which appeals to a lot of Indians. It may not be as unrealistic as it sounds since BJP’s own Subramaniam Swamy is an active proponent of this. This is also a reality in many countries across the world. As many as 23 countries like UAE, Bermuda, Panama, Monaco don’t have a personal income tax in their countries. Some don’t even have corporate tax. How do these countries manage to earn revenue? What are the sources of income for their governments? I explain this hypothetical scenario and how India could potentially make zero income tax.
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00:00Namaskar, friends.
00:01Imagine, our Prime Minister announces on TV at night,
00:06Friends,
00:07To save you, to save your family,
00:10tonight, from 12 o'clock, income tax in the country is over.
00:16Tata, bye-bye.
00:17From today, no citizen needs to pay any income tax.
00:22India will now become a zero income tax country.
00:26Good news for all the citizens.
00:29It sounds quite unrealistic, doesn't it?
00:31But it's not that unrealistic.
00:33Because the BJP's own MP, Subramaniam Swamy, supports this.
00:37He says that to revive economic growth in the country,
00:41income tax should be abolished.
00:43If we look at the rest of the world,
00:45there are many countries where no personal income tax exists.
00:49But for a big country like India,
00:51is it possible to do this?
00:52If yes, then can its benefits be lost?
00:56Let's try to find out in today's video.
00:59In the coming budget, the government can take strong steps on income tax.
01:02Personal Income Tax and Simplification of Taxation.
01:07Arun Chetri tells the government to hold the IT forms.
01:10I propose to bring a new, simplified Personal Income Tax Regime.
01:17To understand this topic in detail,
01:19there are some basic things about taxation that you should already know about.
01:23So let's start from the beginning.
01:24Broadly speaking, there are two types of taxes that the government collects.
01:28Direct Taxes and Indirect Taxes.
01:31Direct Taxes are those taxes that you pay directly to an individual or a company.
01:37Like Corporate Tax, Capital Gains Tax, Property Tax, and Income Tax are also in the Direct Tax category.
01:43But apart from this, there are Indirect Taxes
01:46that are not paid directly by the individual on whom the tax has been imposed.
01:50A big example of this is GST.
01:52Suppose the government increases the GST on milk tomorrow.
01:55The milk manufacturers and milk suppliers will increase the cost of milk accordingly.
02:00When you go to the market to buy milk, you'll have to pay extra money.
02:04You're paying for the GST increase with your own pocket.
02:08But you're paying the milk manufacturers and suppliers.
02:11Who will later pay the extra money, the GST, to the government.
02:16So, if you look at it, you have to pay the cost of GST.
02:20But actually, the money for GST is paid by the government by the milk suppliers and manufacturers.
02:24So, this is an Indirect Tax because you're indirectly paying the tax to the government.
02:29Apart from this, the excise duty on petrol and diesel is also a good example of an Indirect Tax.
02:34Often, you'll hear people say on social media and WhatsApp forwards
02:37that only 2-3% of the people in the country actually pay taxes.
02:41This is a complete lie.
02:43Because if you consider a tax like GST,
02:46then not only every citizen of the country who buys anything from any shop
02:50that has GST on it is a taxpayer.
02:52But even a foreigner who has come to India to travel
02:55and buys things from any shop in India is also a taxpayer.
03:00So, every citizen of the country, every foreigner who is coming to India and living in India is a taxpayer.
03:05But when people say that only 2-3% of the people pay taxes,
03:09they're talking about the Income Tax.
03:11There are very few people in the country who pay the Income Tax.
03:14According to the data of February 2020,
03:16out of the 130 crore population of the country,
03:19only 1.46 crore Indians pay the Income Tax.
03:24This is around 1% of the country's population.
03:27And the reason behind this is not that a lot of people are not paying or keeping black money with them.
03:31The simple reason behind this is that so many people in the country are poor.
03:35So many people are unable to reach the tax limit.
03:38They don't have that much income.
03:40But because of this reason, the people who pay the Income Tax,
03:43the Salaried Income Taxpayers,
03:45they feel that they're being exploited by the government.
03:48Similarly, there are so few people,
03:50so much Income Tax is charged from them,
03:52and nothing in return.
03:54For a businessman or a company,
03:55hiding their profits and not paying taxes is a very easy task
03:59as compared to a Salaried Income Taxpayer.
04:01Because when a common man gets his salary,
04:03the Income Tax is already deducted from it.
04:07On top of that, agriculture income is not taxed in India.
04:10You'd say that these farmers are unable to earn.
04:13How can they be taxed?
04:14But in 2011, an RTI was filed, friends.
04:17I'd like to tell you about it.
04:18It said that there are around 7 lakh individuals in the country
04:22who had earned crores from agriculture
04:25but had paid zero tax.
04:27So there are many rich farmers,
04:30or let's say rich businessmen,
04:32who do farming as well.
04:33Who earn crores from agriculture
04:36but don't pay any tax.
04:38Because in India, there is no tax on agriculture income.
04:40This is another reason why Income Taxpayers
04:43feel very exploited in India.
04:45But all this was from the perspective of an individual.
04:48The more important question is
04:50what would be the country's benefit
04:51if the Income Tax is abolished?
04:53The examples I'll give you are theoretical.
04:57Because for sure, no one knows what exactly would be the country's benefit.
05:01There are just some presumptions and arguments
05:04that are given in its favour.
05:05By experts and economists.
05:07The first argument is that
05:08the money that Income Taxpayers will save
05:10by not paying Income Tax,
05:12Income Taxpayers will be able to spend that money on other things
05:15for their personal benefit or pleasure.
05:18So that more money will circulate in the economy.
05:21Because of which the country's economic growth will increase.
05:23The second argument is that
05:25the people who were liable to pay Income Tax
05:27but were hiding their money from the tax authorities,
05:30meaning they had black money,
05:32by abolishing Income Tax,
05:34their black money will become white money.
05:36They won't have to hide their money.
05:38They can use that money openly.
05:40They can deposit it in the bank.
05:42Or if they use it openly to buy things,
05:44then again the money will circulate in the economy.
05:47Economic growth will increase.
05:49And the money that they deposit openly in the banks,
05:52the bank deposits will increase.
05:54By doing this, banks will be able to lend money more easily to other people.
05:57Interest rates will decrease.
05:59So that people will be able to borrow more money,
06:01and spend more money.
06:03Again, economic growth will increase.
06:05This is a very interesting argument.
06:07But there is a small problem.
06:09We don't know the exact figures of how much black money
06:11people have hidden.
06:13The third argument is very simple.
06:15The money that the government is spending
06:17to collect Income Tax,
06:19that money will be saved.
06:21The money that the government spends to maintain the website,
06:23to maintain the documentation,
06:25the money that is spent on the Income Tax officers,
06:27and from an individual's perspective,
06:29the time that a person spends
06:31to understand different technical terms,
06:33to file applications,
06:35to give money to accountants,
06:37all these require a lot of time and money.
06:39All this time and money will be saved.
06:42If the Income Tax is over.
06:44Now let's see what potential disadvantages
06:46there are to doing this.
06:48The biggest and clearest loss
06:50will be the government's heavy revenue loss.
06:52What is the exact revenue loss?
06:54Look at this graph.
06:56This graph shows how much revenue the government
06:58earns from taxes.
07:01After GST at 28.3%,
07:03the Income Tax is where the government
07:05earns 26.4% of its revenue.
07:08So the government will lose
07:10one-fourth of its revenue from taxes
07:12if the Income Tax is over.
07:14How will all this money be recovered?
07:16It's not like the government will say
07:18that 26% of my earnings are being lost.
07:20Let it be, it doesn't matter to me.
07:22The government wants all the money
07:24that is being lost here
07:26to be recovered from somewhere.
07:28How can this money be recovered?
07:30Those who are in favour of
07:32removing the Income Tax argue
07:34that it won't be necessary
07:36to recover to some extent
07:38because economic growth will be so good
07:40by removing the Income Tax
07:42that more money will come from other sources.
07:44The government's earnings will increase
07:46by more than GST.
07:48Which can compensate for this loss.
07:50It will be very helpful to look at
07:52those countries where the Income Tax
07:54does not exist.
07:56There are 23 countries in the world
07:58without the Income Tax.
08:00But how can the governments of those countries
08:02earn their money?
08:04How can they earn sufficient revenue?
08:06Let's look at them one by one.
08:08The first country that comes to your mind
08:10is the United Arab Emirates.
08:12There is neither a Personal Income Tax
08:14nor a Corporate Tax in Dubai.
08:16Corporate Tax is imposed on oil companies
08:18in Dubai.
08:20The corporate tax imposed on them
08:22goes up to 55%.
08:24It goes up to 30%
08:26on their Dubai-based income.
08:28But apart from these corporate taxes,
08:30there is a lot of Entertainment Tax in Dubai.
08:32It is imposed on amusement parks and theatres.
08:34Apart from this, the import duties
08:36are also quite high.
08:38When you import alcohol from a foreign country,
08:40it can go up to 50%.
08:42Apart from this, when you sell alcohol,
08:44at the point of sale,
08:46it goes up to 30%.
08:48But overall, the answer to the question
08:50for Dubai is oil.
08:52If you don't want to sell oil,
08:54then this revenue source doesn't exist for India.
08:56Interestingly,
08:58it is difficult for Dubai to be dependent on oil.
09:00Because when the price of oil decreases,
09:02the revenue of the Dubai government also decreases.
09:04That's why countries like the UAE
09:06are trying to diversify their revenue sources.
09:08This is the reason why in 2018,
09:10for the first time in Dubai,
09:12a 5% VAT was introduced.
09:14So that the government can get a new revenue source.
09:16Out of these 23 countries,
09:18there are 6 countries like the UAE
09:20that can run their government with the help of oil.
09:22But what about the rest of the countries?
09:24There is a country in Europe called Monaco.
09:26It is a very small country
09:28where no personal income tax exists.
09:30Monaco is a well-known tax haven
09:32where rich people want to stay.
09:34But its case is very special.
09:36It is such a small country,
09:38and such rich people live in such a small area
09:40that the property price here
09:42is very, very high.
09:44And the government collects 1% tax
09:46from the property that is rented.
09:48Apart from this, the VAT here is very high
09:50at 19.6%.
09:52And because so many rich people
09:54live in such a small, overcrowded area,
09:56the price of things here
09:58has increased a lot.
10:00The cost of living here is one of the highest in the world.
10:02If such a situation is created in India,
10:04it will be very bad for the common man
10:06because no common man will be able
10:08to afford such a high cost of living.
10:10That's why let's look at our next country
10:12which is Bermuda.
10:14There is no oil in Bermuda.
10:16There is no income tax and no corporate tax.
10:18So how does the government earn here?
10:20The right answer to this is
10:22the very high import duties of Bermuda.
10:24If you live in Bermuda,
10:26and you bring some things from outside,
10:28there is an island in Bermuda,
10:30so you'll have to bring some things from outside.
10:32So you'll have to pay a lot of import duties.
10:34And for the government,
10:36only 20% of the money comes from import duties.
10:38Cars have a tax of up to 150%.
10:40And there is a land tax
10:42in Bermuda
10:44as high as 47%.
10:46Apart from this, for the government of Bermuda,
10:48another revenue source is the Payroll Tax.
10:50Which is quite similar to the Income Tax.
10:52Because it is imposed on the salaries of the employees.
10:54When salaries are paid to the employees
10:56by the employers, then this tax is imposed.
10:58It sounds like the Income Tax,
11:00but it is a bit different.
11:02Because the Income Tax is imposed on all types of income.
11:04And the Payroll Tax is only imposed
11:06when the salary is paid.
11:08I think these examples are enough.
11:10Overall, you must have understood the basic concept
11:12that when the government is short of money,
11:14then the government looks for other sources
11:16to earn revenue.
11:18So the Indian government will have to look
11:20for a source if there is
11:22zero Income Tax in India.
11:24And if the other taxes
11:26don't pay as much as
11:28people expect in favour of removing the Income Tax.
11:30Now here, I'd like to ask you,
11:32what do you think,
11:34if the government is short of money
11:36by abolishing the Income Tax,
11:38then from which other sources,
11:40from which other taxes should the government earn money?
11:42Write in the comments below.
11:44There is one option,
11:46pause the video, write it down,
11:48and then watch the video.
11:50One option is to increase the GST.
11:52The disadvantage of this would be
11:54that GST is not a progressive tax.
11:56GST is imposed on everyone equally.
11:58But the Income Tax,
12:00if your salary is higher,
12:02then your Income Tax is higher.
12:04If this is done, then the poor will have to bear the loss.
12:06Because if you look at it proportionally,
12:08when you're buying the same thing from the shop,
12:10suppose,
12:12something costs 18% GST,
12:14and a poor person is buying the same thing
12:16and paying 18% GST,
12:18then proportionally, for that poor person,
12:20that 18% GST is more difficult to pay.
12:22It is a bigger part of his income.
12:24Another option could be to introduce a new type of tax.
12:26Like Expenditure Tax.
12:28Or Inheritance Tax.
12:30Inheritance Tax is a very interesting concept, friends,
12:32which does not exist in India today.
12:34But it did exist at one time.
12:36It did exist at one time.
12:38Whatever money you have earned in your life,
12:40when you give that money to your sons and daughters,
12:42they inherit your money,
12:44then a tax is imposed on them.
12:46Many people argue that
12:48this tax is justified
12:50as compared to Income Tax.
12:52Because your sons and daughters
12:54have worked so hard to earn that money.
12:56They haven't worked hard.
12:58So it is permissible to impose a tax on them.
13:00In a way, the argument goes against nepotism as well.
13:02If you haven't worked hard,
13:04if you're being successful and rich
13:06because of the government, then you don't deserve it.
13:08But on the other hand,
13:10if you're earning your salary and paying Income Tax on it,
13:12it is more unfair as compared to Inheritance Tax.
13:14This is also a very interesting debate.
13:16Maybe a separate video
13:18can be made on this.
13:20But in conclusion, I'd like to say
13:22that overall, the government needs to measure
13:24the potential benefits
13:26of removing Income Tax.
13:28Are they better?
13:30Or is it more favourable to keep Income Tax?
13:32This can be judged
13:34after a careful calculation by the economists.
13:36But overall,
13:38the government should do what is in the favour of the common man.
13:40In the favour of the public.
13:42I hope you found this video informative.