Living
and working in the US, the inevitability of Benjamin Franklin’s
oft repeated quote does not elude me. This is especially true
during this time of the year when tax mania generally sweeps
across the country. As the April 16th deadline for filing
taxes approaches people scramble to find the required forms,
software and/or tax practitioners. In case you are wondering,
Uncle Sam’s reach extends to everyone living and making money
in the US, including NRIs and those on H1 Visas.
The US
Government, like most governments around the world, levies
a tax on income earned by most people living and earning there.
The tax collection process has been turned into a well-oiled
machinery. In the four years that I have been in the US, I
have not ceased to be amazed at the efficiency with which
the Internal Revenue System (IRS) goes about enforcing the
tax code. People are acutely aware of their fiscal obligation
towards the Government, if only for the lure of ‘refunds’
that may be due to them. Every year IRS embarks on a major
PR campaign to educate and inform the public of their fiscal
responsibility.
Income
taxes in the US are of different kinds. Almost everyone has
to pay the federal (central) income taxes. Depending on where
one lives, state, county and city taxes will also apply. Along
with the taxes, other surcharges like Social Security, Medicare
etc are added to one’s federal tax and an average person will
end up seeing almost 30 percent of the earnings going to Uncle
Sam. Most of the income tax is deducted at source. Employers
deduct a percentage of the salary that is due to the various
government bodies before disbursing the net amount to the
employee. At the end of every year, it is the responsibility
of the taxpayer to compute the actual tax that was due. If
an excess amount was withheld, the taxpayer will be eligible
for a refund, otherwise, he will have to pay the residual
taxes.
Apart
from their regular income, most people will have other incomes
coming in from bank interest and dividends, profits and losses
from trading stocks. These incomes are generally added to
the gross income on which taxes are due. The government gives
tax breaks for medical expenses, donations to charities, savings
for retirement, interest on home-loan mortgages. Most of the
income and deductions are tracked by the banks and financial
institutions, which report them to IRS. People generally sit
with their tax filing forms during weekends preceding the
April deadline. There are a number of tax software packages
available that speed up the process of computation, filling
forms and can even be used to electronically file the tax
returns to the IRS.
With huge
databases and computer systems developed decades ago, IRS
is able to track and process income tax filings with amazing
efficiency. In spite of what the media says, the system works.
Their systems are constantly being updated and most individual
tax filers are able (and encouraged) to file their taxes electronically.
State governments have also jumped on to the electronic bandwagon
and allow for income tax filings over the Web. Being a bit
of an early bird, I electronically filed my state and federal
taxes towards the end of February and received my tax refund
in my bank account in less than 10 days.
What happens
if you do not file taxes? Most people do not even want to
imagine the consequences. Fear of IRS has reached mythical
proportions and is a butt of Talk Show jokes, especially during
this time of the year. One thing is certain, big brother is
watching. Case in point, along with a few friends, I ‘founded’
a Limited Liability Company in Colorado sometime last year.
We went ahead and got a tax ID because it was required for
us to open a corporate bank account. During January, along
with all my other tax documents, I received a letter from
IRS reminding me to file the tax returns for the company by
April 16th! The ‘archaic’ IRS system was smart enough to realize
that a new company was operating in Colorado and that it had
to file its tax returns along with every one else.
The flip
side of all this is that the government is able to generate
a lot of money. Almost 30 to 35 percent of earnings - from
millions of its citizens and foreign workers add up to billions
of dollars. That money is used to build roads, for education,
public services, libraries and to provide good clean water
and basic amenities to everyone.
Fast forward to a world 8,000 miles away - India. Maybe it
is my idealistic wishful thinking, but just imagine if we
could replicate the same tax collection process in India.
Bring our Income Tax (IT) systems up to speed, help enforcement
of tax filing. If the IT systems (pun intended) at the department
are built with intelligence to help us target even half of
the top fifty percentile of income earners in India and ensure
that they file their taxes accurately and on time. How many
billion rupees will that bring into our coffers? How many
people can we feed, educate and export as IT professionals?
IT helping IT...
