The subject and concept of taxation has existed since 3000 BC, early taxation has been described in the bible, in genesis ch 47 mentions that “when the crop comes in, give a fifth of it to Pharaoh the remaining you may keep for yourselves and your children” So fourth fifth becomes 20% and 20% tax was levied even in 3000 BC. The eminent jurist and economist Nani Palkhivala has said that taxes like water have a tendency to find the lowest level, almost all the taxes ultimately hit the common man. Now in 3000 BC a person earning even 5 rupees was expected to give 1 rupee as tax that time taxation was a new concept but today it is not the case, if the income of a person is below a certain level he is not required to pay any taxes. It so happens in our country that people from the lower social strata are exempt from taxes because they dont have the capacity and people from the higher social strata are given benefits under income tax act because they are contributing towards economic development or increasing exports, so eventually the entire burden of taxation comes on the common man. So this system needs a sea change where only a certain class of people are heavily taxed and the remaining are either above it or below it. Hence one of the effective methods to change this is to tax Indian studets working abroad. Through this three main objectives are achieved, one it increases revenue for the government. Because firms located in SEZs are exempted from taxes and the government has been denied revenue from the BPO’s according to the supreme court judgment in the Morgan stanley case all this has resulted in a significant loss of revenue for the government, which has lea to an increase in the fiscal deficit, hence taxing students abroad will bring in revenue and reduce the fiscal deficit. Secondly the elite institutions were established in the 60s by out ex prime minister Nehru to generate a pool of talent to furthur the technological development and eventually economic development of our country, but because of globalization and attractive job offers abroad majority of these students went abroad and continue to go abroad. So paying taxes can be a compensation for this, that they acquire world class education at a much lower price due to government subsidy and they dont give anything in return, so taxation revenue now can become the return. The third aspect is Indian students working abroad do have to pay certain taxes there, so in addition to that Indian taxes shouldn’t be very high they should be reasonable, but the very fact a tax is imposed will discourage many students from going there to “earn higher and save more” this is usually the objective. They will in fact be able to save more in India and hence a pool of talent can be retained in India it self which was the original objective of Nehru when establishing the elite institutions.
To conclude I would like to elaborate the four principles of paying taxes according to Adam Smith in his book wealth of nations, equity, convenience of tax payer, economy and certainty and clarity. If these factors are taken into account while imposing the tax then it would certainly be fair for the Indian tax payer abroad and beneficial for the common man in paying taxes in India.