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News:
- 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:
- 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.
- Reasons for widening tax base:
- Better gathering of information about sources of income.
- Ease of getting refunds.
- Lowering of various other tax compliance costs.
- 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.
- 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.
- Way forward:
- A draft a new direct tax code should be emphasised upon to further widen and deepen the tax base.