A wider net
India’s tax net must be expanded in order to address inequalities, catch tax evaders and better reflect individual wealth generation and consumption
Over 120 crore telephone subscribers, 25 crore motor vehicles users, around five crore foreign holiday goers, 17.10 crore domestic air travellers, 38 crore holders of Permanent (income tax) Account Number cards, over 12 lakh active registered companies, over 10 lakh registered doctors, close to three lakh Chartered Accountants (CAs) serving as the finance guides, about 20 lakh lawyers (according to Bar Council), lakhs of consultants of all kinds, from real estate to management services and crores of traders — from kirana shops and roadside hawkers to home delivery establishments — are part of the impressive statistics for India in 2019. The e-commerce retail business is among India's fastest-growing markets and is expected to grow at a CAGR (Compound Annual Growth Rate) of 52 per cent to touch USD 36.7 billion by 2020. Together, they help contribute to the country's current GDP to the tune of nearly USD 3 trillion. Further, it is interesting to note that over 3,00,000 Indian students currently study in foreign countries. India is the second-largest source of international students after China. The annual cost per Indian student abroad in local currency varies from Rs 9 lakh to Rs 15 lakh. Rich students spend even more. Indians are spending like never before. No one is complaining. Expenditure generates a vibrant economy. It creates fresh demand, induces investments in production and supplies and creates employment. Economy grows. Is the government's tax revenue growing in tandem?
Not really. The expenditure pattern is not generating the right impact on the government's revenue income. When it comes to the payment of individual income tax to the government, actual taxpayer number boils down to less than five per cent of the country's population. It can only suggest as to how incompetent the country's revenue department has been in organising and spreading the direct and indirect tax net to cover large number of tax evaders and tax avoiders over the years. As a result, honest regular taxpayers are made to share the tax burden of those tax evaders and tax avoiders. Ironically, the salaried people, pensioners and those living purely on income from savings with banks and post offices still continue to be key targets of the government's income tax collection department.
In fact, Finance Minister Nirmala Sitharaman will do well to induce the revenue department to find a way to expand the direct tax net in keeping with the country's vastly diversified sources of income and personal expenditure while reducing the tax burden on regular taxpayers. Definitely, there is a strong case for reduction of income tax for those earning below Rs 10 lakh per annum and for senior citizens, living on pensions and incomes from fixed deposits with banks, companies and government bonds. The union budget for 2020-21, the first full-year budget under the Modi government's second term, will hopefully look into the scope and opportunity for expanding the tax net and reducing the direct tax burden on the existing low and middle-income group taxpayers.
It is time that the government rejigs tax slabs as well as tax rates. Income from dividends beyond the level of Rs 30 lakh per annum of individual shareholders deserves to be taxed. Through the next financial year's budget, the government should also use the tax tool to eye ways of further boosting consumption and reviving growth. The committee set up to review direct taxes has sought a 10 per cent personal income tax rate for those with annual incomes up to Rs 10 lakh; 20 per cent for those with incomes over Rs 10 lakh and up to Rs 20 lakh; 30 per cent for incomes over Rs 20 lakh and up to Rs 2 crore and 35 per cent for incomes above Rs 2 crore. At present, annual income up to Rs 2.5 lakh is tax-free. The income of Rs 2.5-5 lakh is taxed at five per cent; Rs 5-10 lakh at 20 per cent and over Rs 10 lakh at 30 per cent. These slabs have been stable for many years though the government has been providing relief at the lower end through rebates. The committee hasn't suggested any change to the current income tax exemption limit. The task force also suggested removal of the surcharge on incomes at the upper limit. Unfortunately, there is no serious initiative to identify and apply innovative means to expand the direct tax net to rope in those tax-avoiding or evading conspicuous consumers without adversely impacting the growing consumption trend.
The statistical details of the government's income tax collection make an unimpressive reading. It hardly reflects the current consumption trend. As per tax returns data released by the revenue department, the number of crorepati taxpayers in India was only 97,689 during assessment year (AY) 2018-19. Going by the time-series data updated up to FY 2018-19 and income-distribution data for AY 2018-19 (the fiscal year 2017-18), including all taxpayers, the number of those with a taxable income of over Rs 1 crore per annum rose to just around 1.67 lakh. In all, only 5.87 crore income tax returns were filed (digitally signed and e-verified) up to August 15, 2019. The data revealed that over 5.52 crore individuals, 11.3 lakh Hindu Undivided Families (HUF), 12.69 lakh firms and 8.41 lakh companies were among those who filed returns.
This is hardly impressive considering the country's wealth generation trend with individuals and their consumption pattern. India boasts to be the world's fifth-largest economy in USD terms after the United States, China, Japan and Germany. India is the fastest-growing trillion-dollar economy in the world with a nominal GDP of USD 2.94 trillion at the end of 2019 when the country overtook the United Kingdom and France. The country ranks third when GDP is compared in terms of purchasing power parity (PPP) at USD 11.33 trillion. Interestingly, these macro-economic numbers do not get reflected in the number of India's micro-level individual direct taxpayers.
Views expressed are strictly personal