The ‘Non-compliant’ Ones

One of the rather significant bits of data revealed by Thursday’s Budget is that only 2.71 crore of India’s total population of over 121 crore pay direct taxes. In other words, only 2.24 per cent of India’s population pay direct taxes. To most people this should come as a terrible shock, because it is the people who fall within the tax bracket but do not pay taxes that have maged to keep India a poor country and to project the image of India being poor mainly because the people who ought to be paying taxes but do not, are the ones who have been diligently keeping the country poor. We are talking about a whole lot of people who pretend to be poor but are, in fact, rich enough to buy cars. This is a country where 1.25 crore cars were sold in the last five years. This is also a country from where two crore people travelled abroad in 2015. The demonetization exercise, begun on 8 November 2016, also revealed the large number of people who had hoards of cash but were not taxpayers. This unhappy fact of life establishes with remarkable clarity what Union Fince Minister Arun Jaitley said on Wednesday: “We are largely a tax non-compliant society… When too many people evade taxes, the burden of their share falls on those who are honest and compliant.” Unfortutely, one of the reasons why there is such a large number of tax evaders in India is that most people tend to balance their direct tax payments with the benefits they have got out of the system. And in a system that rakes in the direct taxes of the salaried people and the honest ones, but has not found ways of bringing all legitimate taxpayers into the net, the irratiol trend of making honest and compliant taxpayers bear the burden of the “tax non-compliant” ones is likely to continue for quite some time. This is totally unfair, and makes us think of countries like Sweden and Norway where direct tax rates are very high (about 66 per cent at some levels of income), but where people do not mind paying taxes because so much is free for citizens of a true welfare state.