The taxman’s rollback
FINDING it difficult to realize and complete the target, the union Finance Ministry has tied itself up in knots on whether a purported target set by Prime Minister Narendra Modi for taxmen was articulated or not. It has found the questions raised over the target set for the taxmen do not satisfactory answers for the reasons that it is practically not possible to broaden the tax base. There was confusion as on June 16, it said the Prime Minister had asked tax administrators to bring 10 crore households into the tax net, which would effectively double the number of taxpayers. A day later, the Revenue Secretary denied that a target had been set. But the Ministry issued an official clarification the following day, emphasising that the Prime Minister had only asked the Income Tax Department to widen the tax base and take suitable action against tax-evaders. In fact these statements have only added to the confusion and panic over the target and realization of the achievements on this issue. It is not clear why there is such panic about the number, especially if it was a mere statement of intent. As a target, rough or otherwise, it is an ambitious goal for a country where the total tax base (that includes direct and indirect taxes) has grown at a snail’s pace over six decades - from six percent of GDP in 1950-51 to 16.6 percent in 2013-14. Just four percent of voters are individual income taxpayers, well short of the government’s desired 23 percent. Given that the Prime Minister had not set a deadline for the target, any fears of taxmen scouring the streets menacingly to widen the tax net are misplaced. Keeping in view the average income of every household in the country it is very difficult to broaden the tax net on the whims and fancies of the politicians. The politicians refuse to learn from the past experience in view of the fact there are still 42 percent people living Below the Poverty Line and go to bed empty stomach. The question of how to raise taxes from these millions of poor people when poverty alleviation schemes are totally absent and the establishments have only hastened to increase the gap between the rich and the poor also remained unanswered.
India’s tax-to-GDP ratio is far lower than the 21 percent average of its emerging market peers; its public spending-to-GDP ratio is also the lowest among BRICS nations. The country cannot scale up necessary infrastructure and social spending without widening its tax base. About 85 percent of the economy is outside the tax net. Even among those who pay taxes, the number of individuals who earn more than Rs 1 crore a year or pay tax in the 30 percent tax bracket is unrealistically low. Finance Minister Arun Jaitley has taken some steps to expand the tax base - replacing the wealth tax with a surcharge on super-high incomes, taxing luxury car sales to build a database of potential evaders, and even bringing advocates into the tax net. But a more proactive strategy is needed to widen the tax base while prioritising public spending on services that all citizens use - such as infrastructure, law and order, health and education - in a way that the earning classes find value from their tax payments. Tackling corruption and developing an effective property tax regime to curb speculation would not only close avenues for tax evasion but also nudge fence-sitting, potential taxpayers towards the straight and narrow. Jaitley had promised that the government would adopt non-intrusive methods and employ information technology to widen the tax base. With several more transactions now requiring PAN card details, an intelligent datamining exercise could bring more people into the tax net faster. By doing away with the 10-crore target, the Centre has perhaps missed a trick. Apart from this, there have to some innovative schemes so that schemes meant for poor people reach targeted population and empower them economically and financially besides stress on education and basic healthcare. The focus has to shift on human development instead of only setting targets for tax collection when income of the people is not rising. This will add to the confusion and allow more tax avoidance instead of inclusion of more people in the tax net. — Kashmir Times