As of September 2013, according to website slideshare.net, there were 1300 trucks per million in India. Assuming it to be the ballpark figure valid even today, it translates into 16.25 lakh trucks in India. Section 44AE of the income tax law presumes for those not owning more than ten trucks, a monthly profit of Rs 7,500 per truck or Rs 90,000 per year.
Extrapolating this, the truck business generates Rs 14,625 crore GDP for the nation. Since truckers as a lot are not homogenous in terms of total income earned by them and thus fall in various tax brackets, the average rate of 15% may be taken that yields a tax of Rs 2,194 crore.
To be sure these figures are ballpark and made on back of envelope, so to speak, but enough to set the tax sleuths cracking. In the official circles, there is no coyness in conceding that the presumptive tax scheme on truckers has bombed as indeed have other such schemes. Why pick on truckers? Well, they constitute a low hanging fruit for the income tax department. It shouldn’t be difficult to find out the number of trucks from the records of state transport departments with address of their owners, and issuing them notice.
To be sure, some of them might have filed returns in the normal course while a few others may be owning at best one truck thus falling outside the tax net. Whatever the reality, the idea is to smoke out the tax evaders among them.
Private buses could be the next target or simultaneous target of the income tax people being the second most important segment of commercial vehicles population in the country.
Israel has a long history of operating presumptive taxation schemes successfully. Indian defence experts and commentators, in awe of Israel’s fighting powers both intelligence and weapons, commend learning at that small nation’s feet. Our tax department too could learn valuable lessons from Israel on how to design and operate foolproof and convenient presumptive taxation schemes.
Unlike India, Israel operates such schemes across the economy and not to catch the hard to tax segments as in India. But we should stick to the policy of operating such schemes only to the hard to tax segments so that the corporate sector and others’ boats are not rocked.
The trucker scheme would gain traction if glitches inherent in the scheme are removed. It is not enough to say the presumed income per truck is Rs 7,500 per month, and leave the actual computation of tax to truckers because the Indian psyche is not to respond to schemes that are not enforced strictly and sans clarity.
And enforcement is possible only when compliance is simple. The CBDT should sell tax stickers priced at Rs 2,250 each which every truck must buy every quarter in the manner of companies paying quarterly installments of advance tax. This in aggregate translates to Rs 9,000 per truck or an ad hoc percentage of 10% on presumed annual income per truck of Rs 90,000. And who would sell these tax stickers? Who else but the pollution control authorities?
Why they of all the people? Well this is called interlocking. No scheme in India can be successful without interlocking. Salaried class pay tax because it is interlocked with their paycheck.
Likewise, truckers fearing pollution penalty will willy-nilly have to buy tax stickers as well if they want pollution free certificate. Now the income tax department has the trucker by the scruff of his collar. He will file return if he wants refund. If he has got off cheap by paying Rs 9,000 he would keep quiet and the income tax department too would not mind.
Let the trucker model be the template, the basic building block. Each industry is unique but each has something with which tax collections can be dovetailed or interlocked. Embrace presumptive tax with suitable interlocking mechanism is thus what the doctor has ordered.