The government wants more Indians to pay income tax. Finance Minister Arun Jaitley has pointed out over and over how small the tax base in the country is and how it doesn’t seem to be commensurate with other indicators from the economy. In his annual Budget speech on Wednesday, Jaitley devoted an entire section to reading out statistics that he hoped would prove how terrible Indians are at paying taxes.
“India’s tax to GDP ratio is very low, and the proportion of direct tax to indirect tax is not optimal from the view point of social justice,” Jaitley said. “I place before you certain data to indicate that our direct tax collection is not commensurate with the income and consumption pattern of Indian economy.”
He then offered tax return data for assessment year 2015-16 to provide a sense of how many people were declaring their incomes. According to Jaitley, 3.7 crore individuals filed tax returns that year, of which 2.94 crore are either below the income tax limit of Rs 2.5 lakh per annum, or in the first bracket between Rs 2.5 lakh to Rs 5 lakh.
Jaitley gave details for those in the higher brackets as well, and then contrasted that with indicators such as how many cars were sold in the last five years and Indians who travelled abroad, either for work or personal reasons.
“From all these figures we can conclude that we are largely a tax non-compliant society,” Jaitley said.
This is a common enough refrain, particularly among the well-off in India. “Only 1% of Indians pay tax,” is often heard, although it is also a reflection of how poor the country is. Additionally, that phrase is also erroneous, since those outside the income tax net are still subject to indirect taxes like sales tax, service tax, octroi and others.
Nevertheless, India does seem anomalous relative to other countries on this count. The Economic Survey, an annual report on the state of India’s economy tabled a day before the Budget, made a similar point, showing how there are only seven taxpayers for every 100 voters in the country.
Jaitley used these figures to defend the government’s demonetisation move, saying deposits of between Rs 2 lakh and Rs 80 lakh were made in about 1.09 crore accounts, with an average deposit size of Rs 5.03 lakh. Deposits of more than Rs 80 lakh were made in 1.48 lakh accounts, with an average deposit size of Rs 3.31 crore.
“This data mining will help us immensely in expanding the tax net as well as increasing the revenues, which was one of the objectives of demonetisation,” he said.
He also used the data as reasoning behind his decision to relax the tax limits this year, lowering the rate for those earning between Rs 2.5 lakh to Rs 5 lakh by half, and given all in higher brackets a Rs 12,500 rebate.
“In order to expand tax net, I also plan to have a simple one-page form to be filed as Income Tax Return for the category of individuals having taxable income upto Rs 5 lakhs other than business income... I appeal to all citizens of India to contribute to Nation Building by making a small payment of 5% tax if their income is falling in the lowest slab of Rs 2.5 lakhs to Rs 5 lakhs.”
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