A growing tax base

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The latest data of the Central Board of Direct Taxes establishes yet again that the salaried class constitutes the most patriotic tax-paying bloc. It does not shirk from contributing its due share in the task of nation-building, as the advertising thrust of the IT Department coaxes Indians to become honest taxpayers. Maybe it is because the salaried class has its taxes deducted at source, but it is undeniable that the increase in the number of taxpayers in this bloc is higher than in the other classes of taxpayers. The obvious implication is that the self-employed, whether professionals or businesses, find it easier to evade and avoid taxes which the salaried class finds difficult.

However, due to a variety of factors even the self-employed have realised the need to stay on the right side of law. There has been an 80 per cent increase in the number of taxpayers in the last four years. From 3.79 crores in 2013-14 to 6.85 crores in 2017-18, — the Modi years, virtually — direct tax- payers have registered a handsome growth. Whether it is the fear of the midnight knock by taxmen, or the salutary fallout of the demonetisation, or the growing difficulty in keeping incomes under the radar in an increasingly digitising economy, the truth is that avoidance and evasion of taxes is becoming quite risky. Be it the share markets or the commodity markets, hiding incomes has become rather arduous. All this adds up to a larger number of tax payers. Indeed, the data reveals nearly a 70 per cent increase in the number of crorepati taxpayers between 2014-15 and 2017-18. After Mumbai/Maharashtra, Delhi boasts of the maximum number of crorepati taxpayers.

Undoubtedly, the number of actual crorepatis is far more than revealed by the tax data, but clever accounting practices and subterfuges make for under-reporting of incomes, a situation which is changing thanks to better compliance and digitization of the economy. The implementation of the GST has also forced several people to pay their income tax since hiding it has become hazardous due to an unbroken chain of tax payments, refunds and receipts. Despite the remarkable growth in the number of people paying direct taxes, the direct tax to GDP ratio at 5.98 per cent in 2017-18 is nothing to crow about. The direct taxes component should be higher than the indirect taxes since the latter is an unbudgeted tax on the poor.

Indeed, the share of direct taxes in the total tax collections at 52.29 per cent is lower than what it was in 2009-10. Only in 2017-18 have the direct taxes grown faster than the indirect taxes under the present regime due to the tough measures taken by the income tax department and the fear of detection of evasion and stern penalties. The on-going effort to clean up the books of various banks after making provision for the non-performing assets has also sent a strong message that the government would not spare the defaulters exploiting the banking system for diversion of funds into private pockets. Overall, the economy is recovering from the twin shocks of GST and notebandi and is set to grow at a 7-plus percentage. Higher growth can only add to the number of direct tax-payers further. Hopefully, more and more people from the non-salaried classes will join the ranks of taxpayers in the coming years.