In the net

In the net

News:

1. The article discusses about the low share of direct taxes in the total pool of taxes inspite of the wider tax base in this net.

Important Facts:

2. Data:

• According to data released by the Central Board of Direct Taxes (CBDT), the total number of tax returns filed in the country increased by over 80% over the last four financial years from 3.79 crores in 2013-14 to 6.85 crores in 2017-18.
• Further, the direct tax to GDP ratio rose to 5.98% in 2017-18, the highest in the last 10 years.
• With tax growth rate surpassing the growth in GDP, the tax buoyancy factor rose to 1.81.

• The total direct tax collection is estimated to be over Rs. 10 lakh crore in 2017-18, an increase of about 18% from the previous year.
• The direct tax collection in 2017-18 has increased at a higher rate compared to the collection of indirect taxes.
• The average income reported by individual and corporate taxpayers also witnessed a significant rise in the last three years.

3. Reasons for widening tax base:

• Better gathering of information about sources of income.
• Ease of getting refunds.
• Lowering of various other tax compliance costs.

4. Concerns:

• The share of direct taxes has fallen every single year since 2013-14, except this year.
• It is also far too low when compared to its peak of over 60% in 2009-10.
• Most of the rise in the total tax collection in the last few years has come from indirect tax collections.

5. Advantages of direct taxes:

• An increase in the share of direct taxes will help the government to lower regressive indirect taxes that impose a significant burden on the poor.
• Direct taxes are also a better choice from the standpoint of economic efficiency as they help avoid the severe distortionary effects of indirect taxes such as the Goods and Services Tax.

6. Way forward:

• A draft a new direct tax code should be emphasised upon to further widen and deepen the tax base.