India must become a low-tax-rate, high-tax-compliance nation.. where each citizen pays a moderate rate

India must become a low-tax-rate, high-tax-compliance nation.. where each citizen pays a moderate rate

News:

India must become a low-tax-rate, high-tax-compliance nation to improve Tax-GDP ratio.

Important Facts:

Tax-GDP ratio: Tax to gross domestic product (GDP) ratio is the ratio of taxes collected by a government and the GDP of the nation.

• The tax-to-GDP ratio reached its highest level of 11.6 per cent in 2017-18. According to the budget estimates, this would rise further to 12.1 per cent in 2018-19.
• However, the main concern pointed out is that, other than salaried individuals and oil taxes, India is still far from being a tax compliant society and there was urgent need to reverse this trend.

Major reasons for low tax-GDP ratio

• Narrow tax base – Only 3% of the country’s population pay income tax. Children, elderly, farmers and those earning less than Rs 2.5 lakh per annum do not constitute the tax paying population and that leaves us with only about 10 crore people who should be paying taxes.
• Large scale tax evasion. Out of an estimated 8.6 lakh doctors, only 4.2 lakh or less than half paid income tax.
• High number of Tax disputes: India has one of highest number of disputes between tax administration and taxpayers.
• According to the Economic Survey, as of March 2017, there were approximately 1,37,176 direct tax cases under consideration at the level of ITAT, High Courts and Supreme Court and a total of 1.45 lakh appeals were pending with the Commissioner (Appeals), CESTAT, HCs and the SC

Measures for the improvement of tax-GDP ratio in India

• Refining tax structure:
  • A simplified tax structure with optimum number of tax rates, optimum tax rates, low concessions and deductions etc., makes low scope for tax Avoidance as well as tax evasion. Government efforts towards this direction are:
  • The corporate income tax rate is targeted to brought down to 25% by eliminating all concessions and deductions.
  • Regarding indirect taxes, the launch of GST is supposed to raise tax revenues as the rate structure has been optimized with four rates for both goods and services.
• Improving tax administration
  • Aadhaar – PAN linkage
  • Use of digital technology to improve tax administration – project insight, e- way bills, Project Insight, Project Saksham etc.
  • Project Insight is an income tax department initiative to monitor high value transactions.
  • Project SAKSHAM’, is a New Indirect Tax Network (Systems Integration) of the Central Board of Excise and Customs (CBEC)
• Demonetization: Demonetization, have raised direct tax-GDP ratio to reach a 10-year high mark of nearly 6 per cent. Post demonetization, there has been a 25 per cent growth in IT returns and 17 per cent rise in corporate returns

Way Forward:

• The proposed Direct Tax Code should focus on reducing tax litigation which has direct implications for investment sentiment and ease of doing business.
• Revenue Department, must use technology more and more, combining databases, analytics and artificial intelligence tools and applications that identify tax net expansion opportunities.
• As the number of assesses of income tax is rising, there is a need for reducing income tax rates as it is important that in a liberalized economy the share of taxes in GDP should not keep rising.