The report submitted by Tax Administration Reforms Committee (TARC) on 30th November 2014 to the Finance Minister has recommended levying many more taxes. On the one hand, the Government is trying to bring in a unified indirect tax system (GST) and on the other hand, the expert committee is suggesting levying multiple direct taxes. In this article, I have listed out the salient features of TARC recommendations.
- Direct Tax collection (mostly income tax) has increased by over 700% in the last 10 years. The tax collection has increased from Rs.69,000 Crores to Rs.558965 Crore in the previous year
- The number of taxpayers, however has grown by 35% (means the existing taxpayers are paying more taxes, the tax payers base has not increased corresponding to the collection of taxes)
- Out of the total taxpayers, 98% of them are having income below Rs.5 Lakhs per year and from whom only 10% of the total tax revenues are collected!
- The taxpayers having income over Rs.20 Lakhs per year comprise just 0.38% of the total taxpayers, but account for 63% of tax revenues.
- Above Rs.500 Crore revenue is declared by just 168 taxpayers in the whole country!
More interesting facts –
- Out of Indian population of 123 Crores, only 17 Crore of people have PAN Card
- Out of 17 Crore people, only 3.6 Crore people file their tax returns. Of which, 3.52 Crore people have income less than Rs.5 Lakhs per year.
Compare with other countries
- Only 3% of the population pay income tax
- 39% of the population in Singapore pay income tax; similarly 46% in USA, 75% in New Zealand
Is it possible to increase the tax base? (Means increase the number of people who are paying taxes)?
The calculation goes as under –
- Assuming 5 people per family, there are 24 Crore families in India (123 crores divided by 5)
- 30% of them may be earning subsistence wages (like workers in unorganized sector)
- 20% of them may be earning less than Rs.2.50 lakhs per year (so, don’t attract income tax)
- 25% of them may be earning agricultural income (so, not covered under income tax)
- The balance 25%, say 6 Crores of people may have to pay income tax of which, only 3.6 crores are paying taxes. So, the TARC committee feels there is a scope to increase the tax base.
So, what can be done to increase the tax base?
The report says “The more complicated a tax system is, the more the scope for corruption. If thresholds are raised and the rebate system ended, together with a super-rich tax rate that would compare with other countries, it would make the structures equitable without adding complexity”
The super rich tax rate in other countries is more than Indian tax rate. For example, in USA, those who earn over Rs.10 Crore will pay 35% taxes, 40% in South Africa, 45% in China and Germany, 50% in UK. However, in India, the maximum rate is 33%
So, can we expect super-rich tax scheme in the next budget Mr. Finance Minister?
Will write more about TARC report in the next article. [ TARC Report – Suggestion to increase tax revenues and tax base ]
Thought for the day
Leadership is the capacity to translate vision into reality
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