The 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. 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. 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 direct tax base has grown at a snail’s pace over six decades — from six per cent of GDP in 1950-51 to 16.6 per cent in 2013-14. Just four per cent of voters are individual income taxpayers, well short of the government’s desired 23 per cent. 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.
India’s tax-to-GDP ratio is far lower than the 21 per cent 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 per cent 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 per cent 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. Mr. 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 data-mining 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.
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