One Nation, One Tax

The tax system in India was introduced for the first time in 1860 by Sir James Wilson in order to meet the losses sustained by the Government on account of the Military Mutiny of 1857.  Sir James Wilson is also called as the ‘Father of Income Tax’.   Thereafter, several amendments were made in it from time to time, including the recommendation of comprehensive tax reforms in the indirect tax structure in India in 1991 by way of introducing Value Added Tax (VAT) made by Late Shri Raja Chelliah, a renowned Economist called the ‘Father of India’s Tax Reforms’.  The tax system in India is broadly classified into two types of taxes, direct and indirect tax. In addition to these, in the year 2017, the government added the Goods and Services Tax (GST) to the tax system. The taxes that are directly levied on individuals or corporate institutions are known as direct taxes and others as indirect.  Gradually, the taxation system in India has become multi-layered.

There may be many other tax payers who may be getting Bronze, Silver or even Gold Certificates issued by the Central Board of Direct Taxes (CBDT) every year towards payment of Personal Income Tax (PIT) which is however not free of any hassles.  But, here in India, it is not only the question of income tax but rather more than a dozen system of tax collection – be it, Property Tax, Road Tax, Central Goods and Services Tax (CGST), Integrated Goods and Services Tax (IGST), Value Added Tax (VAT), Fuel Tax, Toll Tax, various Municipal Taxes, Service Tax, Capital Gains Tax, Customs Duty, Excise Duty, Gift Tax, Education Cess, Wealth Tax, Entertainment Tax, Securities Transaction Tax and what not.   In fact, it can be said there is a system of multi-layered taxation prevalent in our country and it is high time so many taxes are done away with and replaced with one and only tax which may be called Transaction Tax (TT) or Expenditure Tax (ET).  If that could be implemented, then there will be absolutely no requirement of separate tax collection offices to be maintained for the purpose. 

In the year 2022-23, there was a blockbuster reform whereby stakeholders’ suggestions were sought in the run-up to finalize the then annual budget by the Finance Ministry to bring about a shift in income tax payable based on expenditure done.   Such a shift in tax base was believed to reduce the extravagant consumption and also contribute to increase in savings.  The outcome of such exercise is not known.   

Now, there is a new concept of ‘One Nation, One Tax’ emerging on which many Economists are bringing forth ideas such as there should be stoppage of income tax, GST, VAT and many other taxes and lean on lone tax system instead of multi-layered one and thereby increase the revenue for the government.   By that manner, the nuances of filing Income Tax Returns (ITRs) and other paper works on which considerable amount of time is wasted not only for salaried class but even for business people and even small shop keepers can be done away with. 

It may be mentioned that there are many countries such as the UAE, Qatar, Oman, Kuwait, Bahrain, Saudi Arabia, Brunei Darussalam, etc. to name a few, where the people of those countries are not required to pay Income Tax but instead only contribute towards social security.   For us, a simple solution to reduce paper work and other hassles is just imposition of a single transaction tax or expenditure tax - say a flat of 2 per cent rate per transaction or expenditure regardless of the amount spent.  

A simple uniform tax regime is what is the need of the hour.  Cash transaction should be limited to maximum of Rs. 5,000 and that too covered under 2 per cent expenditure tax, be the customer is rich or poor.  Based on one’s consumption behavior the revenue earned from the tax rate at 2 per cent will simultaneously vary.  This proposed initiative of ‘One Nation, One Tax’ should be a welcome step in the sense that tax should obviously be payable on the expenditure made by individuals instead of grossly taxing purely based on one’s income or pension amount which seems rather unjustified.  It is a common sense that an individual who is capable of spending more should naturally be taxed on his expenditure front, rather than an individual who believes in savings and no way both categories should be treated at par as far as payment of income tax is concerned.  For the ordinary tax payer, there is in fact a sort of multiple taxation, as he/she is paying income tax as well as tax on his/her savings, apart from the Goods and Services Tax on every purchase, tax on utilities, fuel tax, other municipal taxes, etc.  The option of replacing income tax with expenditure tax that is shifted from the income base to expenditure base for tax purposes will be a blockbuster reform with immense potential to provide a fillip to the economy. 

The ‘One Nation, One Tax’ policy has several advantages that contribute to economic efficiency, ease of doing business and better governance.  A single tax subsumes multiple indirect taxes thereby reducing the complexity of tax compliance.   Also, businesses and consumer deal with fewer tax regulations, which simplifies planning and operations.   Businesses operating across multiple states would no longer face varying tax structures, thereby reducing administrative overhead and fostering inter-state trade.  Uniform taxes reduce inefficiencies and encourage businesses to optimize production and supply chains.  More importantly, a clear tax visibility helps consumers understand the price structure better.

While the implementation of such a policy may face initial challenges, the long-term benefits of economic integration, simplification and transparency outweigh these hurdles, making ‘One Nation, One Tax’ a progressive approach to modern taxation.

Yours truly,

(SUBBIAH SRIDHAR)

Freelance Writer & Former Indian Diplomat