I can visualise the packed suit-boot audience feeling uneasy over this widely-known secret revealed by Prime Minister Modi in his address at the Times Now Summit in New Delhi.
Three years earlier, presenting the Union Budget 2017, then Finance Minister Late Arun Jaitley made an equally eloquent delineation of this subject: “the number of people showing income more than Rs 50 lakh in the entire country is only 1.72 lakh. We can contrast this with the fact that in the last five years, more than 15 crore cars have been sold and the number of Indian citizens who flew abroad, either for business or tourism, is 2 crore in the year 2015.
“From all these figures, we can conclude that we are largely a tax non-compliant society. The predominance of cash in the economy makes it possible for people to avoid taxes. When too many people avoid taxes, the burden of their share falls on those who are honest and compliant.”
Time is now for expanding the tax base
For over four decades, IE has been lamenting over the very few citizens filing income tax returns and fewer still paying personal income taxes. We had also been contrasting this with the visible signs of prosperity in terms of the boom in the sales of automobiles, housing property, foreign travel and the like. The shift to the digital economy will help bring significant numbers into the tax net with a welcome impact on revenues to the government.
IE has also been suggesting a target of 10 per cent under the tax net in a year as also to make agricultural income taxable. The system of presumptive tax of a modest Rs 1400 p.a. on traders was introduced but was withdrawn later due to opposition from the traders.
A large number of professionals – doctors, lawyers, chartered accountants, company secretaries, sports persons, artists, actors, directors, etc. are not widely known for tax compliance; many don’t even file tax returns.
Welcome Appeal
In this background, the PM addressing the issue and his appeal are most welcome. This should be followed by a few reforms. Such as making it mandatory for all income-earners to file a return on their income before a fixed date. Re-introduce the presumptive tax and make it mandatory for all traders. Make it mandatory for farmers to own more than five acres to file a tax return. It shouldn’t matter if most of these show loss or negligible earnings.
These efforts would help nurture a culture for tax compliance.
With the strides made in information technology, it should be possible to handle the massive volume of such returns and automate decisions on these.
Prime Minister Modi should pursue his appeal by working on annual targets to expand the number of tax assesses and take it to 30 per cent by 2024.
