Prime Minister Narendra Modi said that the taxpayer base will be doubled to 10 crore and tax collection target can be achieved without coercion. There are five pillars for this; Revenue, Accountability, Probity, Information, Digitalisation (RAPID) which will improve tax efficiency and tax administration.
India’s population is 100 crore while tax payers are about 3.5 crore only and black money contributes 75% of the GDP. Hence Tax reforms are very significant and since 1991, there have been lots of positive changes with tax reforms. It is quite notable that since 1991, the economic reforms started there is a considerable increase in the volume of tax collection and the ratio of Direct taxes in the total tax revenue of the govt. has mounted revenue up to approx 56.6% in 2010-11 and tax-GDP ratio is being projected at 10.8%in 2010-11. In 1991, Income Tax rate was very high and now its 30 % which is considered as the lowest in the world. The tax base has gone down and hence it needs to be expanded. The Prime Minister aims to reduce tax rates and increase the number of tax payers, i.e., both direct and indirect which constitutes 50% of the tax revenue which will have an impact on GDP ratio. The people who are not paying taxes are mostly professionals or retailers and hence there is no presumption. Other countries like Malaysia have a well established preventative and presumptive tax rate. On the other hand, India does not have a presumptive tax rate. Like Subramanian Swami says that if he steps in, he will abolish all taxes. But no country has ever removed all taxes. Even though there is minor 2 % corporate tax, but they have it. Government at least needs resources to run the state. When there is evasion of tax, the cash is of no utility, but property is bought with it.
There are certain serious impediments. Firstly, those who want to pay but are scared of maltreatment and harassment. Secondly, people who are completely out of taxation framework and thirdly, people who do not want to pay and are kept out of taxation framework. We do not have the responsibility neither the manpower to widen the tax base.
There have been certain efforts by Government towards brooding strengthening and simplification of tax base:
- Rationalization of slabs.
- Simplified and citizen-friendly procedures, like SARAL etc.
- Increasing number of services under service-tax brackets.
- Robust growth rate of the economy.
- Inception of e-governance like e-filling of returns etc.
- Introduction of new taxes – VAT, GTS, FBT, STT, etc.
- Incomes of individuals and companies have grown up.
Political economy is the main issue and hence cleaning the tax system is very important, for which transparent funding of political party is very important. No doubt, it is tough but if tax compliance is required, it is very important and it can be done. People should be assured that there shall be no harassment. The Kelkar Committee suggested Tax information Network from where people can collect data. The Government should collect data and analyse where tax has been paid and where not. Hence Big Data or Data Collection can be very helpful in this regard. GST is a big leap on tax information. Consumption pattern can be recorded. Moreover, KYC is already implemented and hence there can be recording. What we need is a clear framework and some sanity. There is cultural shift and modern tactics will help a lot. Tax reforms needs to be incentivised and non adversarial. What we need is ’One Government Approach’ so that comprehensive data is there. We have two, i.e., CBEC and CBET which do not talk to each other. The structural form should itself be changed. It is a normal human tendency that if one is not monitored, then there will be tax evasion, hence, monitoring is very important. Modern system of tax administration is very beneficial in this regard. Reform in tax administration is very important. The structure needs to be changed. UK’s HMRC should be taken as a model which looks after the interest of the tax payer and uses data to analyse and tell people where they have not paid tax. Hence this idea of cooperative compliance should be followed by India to widen the tax base.
Ipsita Mishra, Associate @ SAPAA. She did her BALLB from NLU Odisha. A writer, Food enthusiast and an adventurer who loves traveling. She primarily likes working at the Confluence of Law & Policy.
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