With reference to the interview with M Govinda Rao, Member, Prime Minister’s Advisory Council (October 21) the suggestion to tax income over Rs 15 lakh at 40 per cent needs critical examination. Unfortunately, Mr Rao has not explained why this proposal is good other than to say someone else is doing it. If the ostensible purpose is to raise revenues then the Central Board of Direct Taxes has shown that revenues can be raised without raising the tax rate—as a report published by your paper a few days ago showed. There are other better ways to increase revenues, some of which are already being followed. For example:
(i) increasing the tax base. We have about 30 million individual assessees (in 2007) out of an adult population of 500 million;
(ii) making tax laws simpler and increasing awareness about it;
(iii) improving surveillance and investigation;
(iv) bringing back black money.
Increasing the tax rate will reduce consumption and increase tax evasion - we have seen lots of it during the 90 per cent marginal rate era and it may have the opposite effect of reducing revenues!
Krishnaraj, Bangalore