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THE CHALLENGE OF CATCHING ELUSIVE TAXPAYERS

Focus: GS-III Indian Economy

Introduction

  • India’s tax collection is set to decline sharply in 2020 because of the decline in national income and fall in employment due to COVID-19.
  • Thus, the fiscal deficit in the budget is set to rise unless other expenditures are cut.
  • However, there are committed expenditures which cannot be curtailed and the deficit in the budget is set to climb to a new high for 2020-21. So, there is no option but to try and collect more taxes.

Recently in news:

The Prime Minister unveiled income tax reforms to make the system faceless, painless and seamless.

He stated that 15 million people pay income tax out of a population of more than 1.35 billion.

Drop in number of taxpayers

  • The number of tax filers has increased but the number of taxpayers has dropped. This is a result of the tax concession offered in the Budget — those filing a return up to ₹5 lakh do not have to pay a tax.
  • Despite an increase in population and the laws introduced in the last six years to bring the rich into the tax net, there has been little change in the number of taxpayers.
  • The fact that the direct tax to GDP ratio in percentage terms is stagnating at about 5.5% is another indication of this.
  • A 2016 report says the top 10% of Indians earned 55% of the nation’s incomes.
  • If these people could be brought under the income tax net and they paid their taxes honestly, at current tax rates, income tax to GDP ratio alone would have been about 18%. Add to that the collection from other direct taxes, like corporate tax, and the figure would be more than 20%.
  • More than 23,000 high net worth individuals left the country in five years up to 2019.

Steps in the right direction

  • A considerable part of the tax filing process was computerised when e-filing and, earlier, PAN were introduced. These measures tried to cajole people into filing honest returns.
  • The Government has decided to hand over the process of taxation to computers – The computer will decide who will assess the tax return of an individual and during the different stages of a case, different officers will be involved. (So that no nexus can be formed between the taxpayer and the officer involved in passing the return.)

Concerns

The department is grossly understaffed and officers have inadequate time to scrutinise cases. A few thousand officers have to deal with lakhs of cases.

-Source: The Hindu

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December 2022
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