Our taxation base

Is the country’s hitherto miniscule taxpayer base now beginning to widen under the demonetisation impact? The Central Board of Direct Taxes (CBDT) has been contending that statement of fincial transaction (SFT) report filed by banks shows precisely such a welcome trend. In July, CBDT chairman  Sushil Chandra had pegged the number of tax assesses at 6.26 crore, and had promised that taxmen will soon be using e-assessment tools to scrutinise income-expenditure profile mismatch cases in the cities, and will also go after persons and entities (under the amended bemi properties law) for investing in real estate without filing tax returns. And now comes the news that the Income Tax Department added 91 lakh new income-tax payers in 2016-17 fiscal. By the deadline of August 5 last, 2.82 crore returns were filed, said to be a 24.2% jump compared to last year. In case of individuals, the increase was 25.1%, with the I-T department estimating the number of returns filed at 2.79 crore. Advance tax paid by individuals rose nearly 42% till August 5, while persol income tax through self-assessment increased by 34%. According to taxmen, all this indicate that a large number of new taxpayers have come into tax net post demonetisation. They also claim that many individuals who had deposited large sums of cash either into their accounts or those belonging to family members, are now filing returns to avoid hassles later on. A sizeable number also reportedly revised their returns, ostensibly after taxmen identified their bank deposits as not being in line with their tax returns or known sources of income. They are said to have taken alarm after queries were posted in their online tax accounts; while those who responded are now coming clean, those who did not are likely to face the heat later on. In fact, bogus bank accounts to hoodwink taxmen will soon be a thing of the past once the linking of PAN cards with Aadhaar number is completed.

As for the mega indirect tax regime Goods and Services Tax (GST) the country adopted from July 1 last, the past 50 days have witnessed a huge struggle by businesses to learn how to properly file 3 returns a month and one yearly return — what with a stream of rule changes, rate re-adjustments and clarifications, extension of deadlines, and the GSTN portal crashing once. As was only to be expected, the transition has been anything but seamless, with practical solutions worked out on the ground. Still, things seem to be settling somewhat, with 79.5 lakh applicants reportedly seeking GST registration by last week. This works out to 99.3% of the 80 lakh taxpayer base under the earlier system that comprised assessees of state value-added tax (VAT), service tax and central excise duty. Significantly, of the 79.5 lakh applicants for GST, as many as 9 lakh are first-timers who had not registered for any indirect tax under the previous regime. Smaller traders and dealers are coming aboard because of fears that without GST registration, they will lose business from large companies — so is the belief now professed by GSTN authority. This besides, the new regime also puts the onus on service providers to register in every state where they operate, which could explain higher GST registration figures. So by all indications, GST is set to widen the tax base and increase government’s tax revenue receipts. Tax experts point out that while India’s tax revenue as a share of its gross domestic product (GDP) was 16.7% in 2016, it should be compared to 25.4% in US and 30.3% in Japan. Tax compliance will remain a problem in this country when less than 3 crore or 0.02 percent of its 130 crore population pay direct tax. There is now way any government at the Centre will tax rich farmers, tribals and some other categories in near future apprehending adverse political fallout. So indirect taxes it will have to be — with all hopes for a wider tax base to give the government sufficient leeway to lower tax rates and raise welfare spend now depending on how the GST regime delivers in the coming days. Lest it be forgotten, the share of direct taxes to total tax collection in the last fiscal was estimated at 49.7 percent, the first time it fell below 50 percent in past 10 years. This trend has been attributed to increase in service tax component in the total collection. But all said and done, the larger share of indirect taxes in total tax revenue collection can never be a good thing. It is after all the poor — spending most of their earnings on food and essentials — who end up paying higher individual tax rate than the rich.