Income Tax Free Regime

pmaitra

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Income Tax Free Regime

This thread is to discuss the mechanics of a state, which may be a province, or a country, where there is no income tax. This may not be misconstrued as a tax free regime.

The purpose of this thread is not limited to any country. We may discuss how it works in some places, and how it can be implemented in India.


Example: The United States of America

The United State of America is a union of states. Each state has a large degree of autonomy on how it manages and administers its economic policies. One of them is Income Tax.

Here is a list of states that do not levy any income tax on its citizens:
  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas
  • Washington
  • Wyoming
  • Tennessee (grey area)
  • New Hampshire (grey area)

How do Income Tax Free states generate revenue?
  • Alaska and Wyoming, inter alia, generate revenue from severance taxes on natural resource extraction.
  • Nevada and Texas, inter alia, collect a bulk of their taxes from sales.
  • New Hampshire, inter alia, collect a lot of tax from excise.
 

pmaitra

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Previous discussion (sorry if I missed some posts):

I am actually a firm believer in less regulations and red tape, not more.Take anything good and the government is bound to screw it up. With GST, I'm actually disappointed that nobody is talking about doing away with income tax. It is unfair to tax people on their income and then again when they consume goods and services.
You make an interesting point on a tax free society. There are several states in the US (Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming, New Hampshire, and Tennessee) that have no income tax. I think we should have a separate thread on how the system works.

@Razor, @Sakal Gharelu Ustad, et al..
So you want either there should be only GST or IT

But then i donot understand one thing , why do west particularly wealthy European nation have both considering that they on an average there 30% of population pays tax and also there tax structure (tax rate) is higher compare to India .This nation should n`t have GST/Vat in first place itself..

I assume collection from IT is not enough to run whole gov system ..

Even if assumed that future gov would drop one of them then it would IT and not gst/vat

As by having gst/vat they would get good amount in tax but same cannot be sure of IT

But then such gov would be termed "suit boot ki sarkar" as gst would effect rich and poor same ..

Rich would be happy but would poor would be happy ????
European countries have a lot of socialist policies and the system somewhat works because of cultural homogeneity and high rate of education. Wait for the refugees to screw it up. Anyway, point being that the government controls the life of its citizens to a high extent.. Indian socialism is a failed experiment because of corruption and illiteracy.=

> IT is not enough to run whole gov system.

I propose burning down the system. It is full of corrupt politicians, if they take x amount of money from you, only a fraction (let's say 10-20%) will reach down to the common man.

> GST effect rich and poor the same.

Well, depends on how it is setup. For example - similarly to IT standard deduction, a certain amount could be free from GST per individual per year. This could be the typical spending of a family living below the poverty line.
IF there is no IT then how comes those states generate revenues assuming they are not taking loan ..

ISn`t IT is charged by federal gov... ???

OR USA has some different radicial structure
Most states in US have state income tax as well in addition to the federal income tax everyone has to pay.
Ok off topic but then how does states mentioned by pmaitra generates revenue

IS revenue generated by means other then IT is good enough for this states (Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming, New Hampshire, and Tennessee) to run gov efficiently ???

How are this states financial health ???
Property tax and sales tax. Their finacial health is fine.
...................................................................
European countries promoted welfare policies because of a fear of communist revolution.

As for the Indian constitution, @captscooby81 probably knows better but I believe the words "socialist" were added by Indira Gandhi. If the constitution could be edited then, it can be edited now.



You're misunderstanding what I'm saying sir. Everybody regardless of income gets X amount exempt from GST in the form of a credit. This X amount could be calculated every year and indexed to the average spending of a poor family. Now when somebody buys stuff they could choose to let's say use their Aadhar card to pay the GST from that credit.

There are a bunch of ways to do this, the discussion is best served in another thread.
Oh, they do generate revenue. They have other types of taxes, just not income tax. Please give me some time. I will open a new thread.

Yes, income tax has to be paid to the IRS, which is the Federal Government.
___________________

Also, inviting @Sakal Gharelu Ustad, @Razor, et al..
 

Razor

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I'm not an "economy dude" so don't know how relevant but it seems states with strong oil & gas industry seem to get rid of IT like some of the states @pmaitra mentioned and also many ME states.
 

Mikesingh

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Here is a list of states that do not levy any income tax on its citizens:
  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas
  • Washington
  • Wyoming
  • Tennessee (grey area)
  • New Hampshire (grey area)
In India we have:

  • Arunachal Pradesh
  • Manipur
  • Mizoram
  • Nagaland
  • Tripura
which are income tax free. However,

1. The resident has to be a member of a Scheduled Tribe.
2. Residing in States of Arunachal Pradesh, Manipur, Mizoram, Nagaland and Tripura),
3. For any income which accrues or arises to him from any source in these areas.

All the 3 conditions have to be satisfied.

However, where Sikkim is concerned according to Section 10 of the Finance Bill, income of a Sikkimese individual from any income arising out of the State of Sikkim has been exempted from income tax. No State Govt Sikkimese bureaucrat pays any income tax!!

And in spite of this Sikkim has been ranked No 1 among small states in most aspects - health, education, cleanliness, economy, infra, quality of life and so on.

Gangtok.



 

anoop_mig25

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I donot exactly remember where but i had recently read that due to dwindling money from oil one of gulf states is planning to introduce IT

between US has different type of tax structure which hasn`t been replicated any where

for eg states having there own IT

I donot think any other country has such provisions

but is possible to have country free of IT

Is there any concept paper
 

pmaitra

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Let us take Texas as an example.

Texas has no income tax. However, it does have property tax. It also has sales tax. Both of them are pretty high.

So, how will it impact how the citizens of Texas behave?

Low income tax, ensures, people would be incentivized to have a job with an earned income.
High property tax, ensures, people will not buy property without actually making productive use of it.
High sales tax, ensures, people will tend to buy what is necessary and tend to avoid what is not.

Essentially, this ensures that Texas remains a land of hard working and fiscally conservative people.

In reality, one could go to one of the large cities in Texas, and see plenty of Ferraris and Maseratis all over the place. This, however, is probably attributable to its oil revenues.
 

Krusty

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I'm going to take a stab here and say a lot of people here aren't used to daily life outside of big metros or towns in India :)
 

Tibarn

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Washington is big in the Tech industry, Microsoft, Amazon, etc have their base there. Texas also has a large tech industry in Austin, Dallas, and Houston.

I support getting rid of income tax and just having a consumption tax in its place.
 

jackprince

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if Govt. lets go of personal Income Tax, it would have to raise other taxes. For example, in 2016-17 the net total personal Income Tax collected was Rs.353173.68 crores, which exceeded even the total Central excise Duty collected that stood at Rs.318669.50 Crores. Now, to compensate the revenue loss for abolishing personal Income Tax, all commodity related taxes would be needed to be raised at least by 40%. The way people is cribbing about GST rates now, just imagine how the fall out would be. And, in fact introduction of more indirect taxes or even raising the rate would hit the poorer section of people much harder, as indirect tax affects all the commodities and therefore, all people unlike direct taxes like personal income tax.

The argument of distributing taxes equally to all classes of income group may have some validity, yet it would be silly to expect it is possible to implement that in a nation where still a small percentage people goes in empty stomach. All kinds of social and developmental projects undertaken by the Govt needs money.

Those who feel cheated by the Govt for having to pay income tax, may easily discount the amount from their earnings from the beginning. If one is paying the Income Tax, he sure is in a better position than at least 50% of the population. Even there are many schemes under which income tax can be avoided or less amount may be paid. I personally have to pay over a month's salary in income taxes, but I plan in such a manner that it doesn't hit me at March end. It is prudent to note that the longtime savings that several schemes encourage for saving income taxes do get channeled to the developmental projects and actually help the growth of economy. If income tax collected was about 3Lac crore in 2016-17, no less than 5-6 lac crore had come into the longterm savings schemes to the financial institutes who would channel those into various projects. Any indirect taxes cannot have that facility.
 

Raj Malhotra

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I think that Income Tax should be abolished. I also think that all indirect taxes should be abolished including GST except on petroleum products & Sin goods like Alcohol & liquor. These limited goods actually contribute majority of indirect taxes.

Revenue recovery should be made by raising basic customs duty to 40% from 10% which is permissible as per WTO. And raising duty on diesel by additional Rs. 20 per litre. These measures should generate Rs. 25?lakh crore per annum, adequate to cover all revenue loss.
 

jackprince

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I think that Income Tax should be abolished. I also think that all indirect taxes should be abolished including GST except on petroleum products & Sin goods like Alcohol & liquor. These limited goods actually contribute majority of indirect taxes.

Revenue recovery should be made by raising basic customs duty to 40% from 10% which is permissible as per WTO. And raising duty on diesel by additional Rs. 20 per litre. These measures should generate Rs. 25?lakh crore per annum, adequate to cover all revenue loss.
Petrol : Excise Duty= Rs. 21.48 Vat = Rs.14.97 Total = Rs.36.45

Diesel : Excise Duty= Rs. 17.33 Vat = Rs. 8.69 Total = Rs.26.02

2016-17 on petroleum products : Excise = Rs.242691 Crores Customs duty= Rs. 9521 Crores

Approx division Pterol = Rs.(2950.584 X 21.48) Crores = Rs.63379 Crores; Diesel = Rs.(8776.4662 X 17.33) Crores = Rs. 152096 Crores; Others = Rs. 27216 Crores

If Rs.20 is raised over Excise duty, Excise Duty on Petrol would be Rs.41.48 and Diesel Rs.37.33.

Petrol sale for 2016-17 = 2.184 Crore Tonne = (2.184 X 1351) Ltrs. = 2950.584 Crores Ltrs.

Total Revenue from Petrol would be = [2950.584 X 41.48) Crore = Rs. 122390.22432 Crores = Rs.1,22,391 Crore

Diesel sale for 2016-17 = 7.46 crore Tonne = (7.46 crore X 1176.47) Lt = 8776.4662 Crore Ltr.

Total Revenue from Diesel would be = [8776.4662 X 37.33] Crore = Rs.327625.483246 Crore = Rs.3,27,626 Crore

So, total revenue from the fuel would have been = Rs.(1,22,391 + 3,27,626 + 50,000[others]) = Rs.5,00,017 Crore

If Basic Customs Duty is increased by 40%, total increase in Customs duty on account of petroleum would be Rs. 12377.3 Crores.

So, if Excise Duty is raised Rs.20/litter and Customs Duty is raised , the revenue increase would be only Rs. (257326 + 2856.3) Crores = Rs. 260182.3 Crores.

Now, total Customs Duty realised for F.Y.2016-17 was Rs. 230000 Crores. If BCD is raised by 40%, the revenue would increase to Rs. 292727.3 Crore, which would include the raised Customs duty realised on Petroleum products, too.

So, if your proposed steps have already been taken for 2016-17, the Total revenue earned by exchequer would have been = Rs.( 5,00,017 + 292727.3) Crore = Rs.7,92,744.3 Crores.

This is an estimate without factoring in the probable reduction in demand of both fuel and import goods, due to raised price.

Now, total revenue Collected during F.Y.2016-17 by the GoI was = Rs 493923.55 Crores (Corporation Tax) + Rs. 353173.68 (Personal Income Tax) + Rs. 230000 Crores (Customs Duty) + Rs.318669.50 (Excise Duty) + Rs. 231000 crores (Service Tax) + others = Rs. 1630887.81 Crores.

So, even if we retain the corporate tax, the GoI would still come up short with almost Rs.4 lakh crores.

Not only will it demolish the govt. exchequer, it will hurt the poorer section most as every commodity goods will be affected due to almost 50% higher transport cost.


It is the petty thinking of the people with lots of money who always shrink away from the taxes.


Source: http://indiabudget.nic.in/ub2016-17/rec/tr.pdf
http://profit.ndtv.com/news/commodi...sumption-growth-slows-to-5-in-2016-17-1679630
 
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