Urgent Need to Enlarge Tax Base - 98% of taxpayers pay 10% of taxes - TARC
THE Tax Administration Reform Commission (TARC) has submitted its Third Report to the Government.
The Commission notes that:
1. In the last ten years, direct tax collection has increased by more than 700 per cent (from Rs.69,198 crore to Rs.5,58,965 crore), but the number of taxpayers has grown by only about 35 per cent.
2. The total number of taxpayers in the lowest income slab, (i.e. up to Rs.5 lakh) comprises 98.30 per cent of total taxpayers, from whom 10.1 per cent of the tax revenues are collected. The highest slab of above Rs.20 lakh comprises a meagre 0.38 per cent of total taxpayers, contributing 63 per cent of tax revenues.
3. In FY2008-09, the numbers of corporate taxpayers in the Rs.0-100-crore slab was 463,507 and those above Rs.500-crore slab numbered just 186 taxpayers. This suggests that the income tax base in revenue terms is very narrow and adversely affects tax buoyancy.
4. India has a low taxpayer base even as a percentage of the total population. With a population of over 120 crore, only 17 crore have a PAN and of these, about 3.6 crore file income tax returns. Only 3.3 per cent of the population pays tax, which is very low compared to 39 per cent in Singapore, 46 per cent in the USA, and 75 per cent in New Zealand.
Widen the Tax base: The Commission notes:
1. Even though widening the tax base has been one of the key action plan areas for the last several years, achievement has fallen short of targets. There, therefore, is an urgent need to enlarge the tax base as well as taxpayer base (which is not commensurate with the growth in income and wealth seen over the years) through both policy as well as enforcement action by bringing into the tax net high net worth assessees and potential tax payers.
2. Even after allowing for agriculture households, dependent family members, and other relevant criteria, the tax base should be far larger than it is at present. It is possible to increase the number of income tax taxpayers from the present 3.5 crore to at least 6 crore. Assuming a family size of 5, there are 24 crore families in India. Assuming, further, that 30 per cent of the households earn only subsistence wages and another 20 per cent are below the income tax threshold, there will be 12 crore potential taxpayers. If one-half of this is assumed to derive income from agriculture, there will be 60 million or 6 crore potential taxpayers.
3. There is, thus, significant scope to increase the tax payer base and a lot of this increase will need to come from both increasing the tax base and ensuring true income disclosures. Widening the tax base raises equity, because if all persons liable to pay tax are brought on tax records, the burden on existing taxpayers can be brought down.
4. The overall level of compliance improves when a large number of persons who are legally required to file returns, do so. It also encourages others to comply with their legal obligation to pay their taxes dutifully