Many are urging the Government to scrap taxes on the incomes of individuals. The Pune-based economic think-tank, ArthaKranti, which claims to have suggested ?500 and ?1,000 banknotes be demonetised, has urged that all taxes other than customs duty be scrapped and replaced with a banking transaction tax of 2 per cent on earnings. BJP MP Subramanian Swamy too has been saying for over two years that income tax should be abolished to boost spending. Some believe it will end the generation of black money.

Now, who would not like to escape paying taxes on income? There will be more money in the pocket or the bank account, and no drudgery of tax planning, investing in tax saving schemes, paying taxes and filing returns year after year. But what’s good for individuals is not good for the Government. The Government needs to find resources to spend on welfare schemes and pay the expenses of running the establishment. ArthaKranti’s suggestion of tax on cash withdrawals from banks will be mostly unacceptable. Remember P Chidambaram’s failed attempt with Banking Cash Transactions Tax in 2004-05?

In such a scenario, the Government would have to depend on taxes on the income of businesses and on the consumption of goods and services. Depending on consumption taxes, even when the GST regime is implemented, is not desirable as it puts a relatively higher burden of taxes on the poor even if the items commonly consumed carry benign levies. They also consume items that would attract higher taxes.

Therefore, the Government would do well to rationalise taxation on personal incomes and simplify the tax structure. Implementing the recommendations of the draft Direct Taxes Code 2009 that suggested widening of the tax slabs and taxing incomes up to the level of ?10 lakh at 10 per cent while cleaning up exemptions and deductions would ensure more money in people’s pockets and reduce the drudgery of compliance.