The tax evasion affair is a murky business the world over. India’s Income Tax department has released data for the period 2000-2001 to 2014-2015. The intention is to increase transparency and help data analysis. But some of the findings are discouraging. India is one of the fastest growing countries of the world which attracts the biggest wealth management firms but only 18,359 individuals had declared incomes over Rs 1 crore in 2011-2012 and paid tax on it. Of the over 5 crore individuals who filed their tax returns, only the top 11% paid 80% of all personal income tax. 16 crore tax filers paid no tax, being in the lowest tax bracket. 85% pay less than Rs 1.15 lakh tax annually. Such data underscore the need for widening the tax net and streamlining collections. The top creamy layer includes a very small number of taxpayers. It emphasizes growing income inequality. One reason for the small number of billionaires in the creamy layer is that a huge amount of capital gains is exempt from tax. The amount was Rs 70, 121 crore in FY 2012-2013. Besides, there is the setting off of loss in business income (at Rs 67, 63 crore) and farm income which is outside the tax net, though considerable. India’s gross tax t GDP ratio has therefore remained more or less the same in the last few years.
All this is at odds with the need for expenditure on health, education, social security plus social and physical infrastructure. It is necessary to widen the tax net (how long will farm income be a holy cow) and deepening the tax base (without aggravating poverty). Such exemptions as are not necessary for the low tax-payers should be curtailed. Finally, the data released recently leaves out the basis of compliance. How many among the rich evade tax payment? And they do not merely include film and sports icons whose arrears are common knowledge but done nothing about.
