Have you wondered how many people pay income tax in India? In the recent budget, it was announced that everyone earning up to Rs 5 lakh of annual taxable income would get a full rebate. Effectively, they would pay zero tax. This brought cheer to the middle class, that somewhat undefined category of people.
The finance minister said the measure would benefit about 3 crore taxpayers. One can assume that these people will have zero income tax to pay. The chairman of Central Board of Direct Taxes revealed that India now had about 6.3 crore income taxpayers. So of these, it looks like 3 crore will contribute nothing.
The total income tax collection in the country is about Rs 11 lakh crore. This includes tax paid by companies. Of the roughly 10 lakh registered companies, more than 80 per cent are either making losses or showing very little income. But corporate I-T collection makes up more than half of all income tax collected. So let’s say Rs 5 lakh crore is collected from 3 crore taxpayers, which puts average tax burden of over Rs 1lakh per person. Around Rs 1.5 lakh is equal to the average annual income per person in India. So the tax burden on actual taxpayers, who don’t even account for 2.5 per cent of the population, is on average equal to full annual income per capita of all Indians.
It is not surprising that India has one of the worst ratio of taxpayers to voters. According to the Economic Survey, there are only 7 income tax payers for every 100 voters in India. This number is 100 for Sweden and Norway, and over 60 for USA. India is ranked near the bottom on a list of 55 countries. No wonder politicians don’t care about taxpayers as most of the votes come from non-payers.
Of course, it’s a known fact that every person bears the burden of taxes through indirect levies such as sales tax (now called GST). So even a bar of soap or a plate of idli in a restaurant has an element of tax, whose burdens falls on the consumer. But this is indirect taxation, and the amount of tax on soap or idli is not dependent on the income of the buyer. Which means that for a poor person, sales tax (or GST), as a percentage of his/her income, is higher. That is why indirect taxes are regressive and unfair. But they are easier to collect, unlike income tax which in India seems very difficult to collect.
There are only about 1.5 lakh people who have declared income above Rs 1 crore and most of them are from the salaried class. Where are the crorepati taxpayers hiding? In Parliament alone, 449 out of 543 members are self-declared crorepatis, whose wealth exceeds Rs 1crore. In fact, the average wealth of MPs in Lok Sabha is Rs 14 crore, as declared in 2014. How many of these are taxpayers one wonders.
The level of direct taxes as a proportion of total tax collected must rise for India to be counted as a developed country. That ratio is abysmally low. What makes this worse is that we get very generous exemptions. The per capita income of the country is about Rs 1.5 lakh, but now income up to Rs 5 lakh is completely tax free. If you include additional tax incentives this “tax free” income can be as high as Rs 9 lakh. And because direct tax collection is low, the burden of indirect taxes has to be increased, which hurts the poor disproportionately more.
Recently, the government announced reservation in jobs and education for the “economically weaker section” (EWS) of society. But to determine EWS status, you need concrete proof of income. The only solid proof is your tax return. Anything else is incomplete since you can always hide earnings. And there is no point in making a government officer or village tehsildar responsible for certifying “poor status”. That will simply invite corruption and a “poverty certificate” racket. So to roll out EWS quota successfully, all Indians should be encouraged to file income tax, even with zero tax liability. That is the surest way to disclose income and get accurate data.
One more point. The law says that you cannot file income tax unless your PAN is linked to Aadhaar. Of the 44 crore PAN cards issued, only half have been linked, and the deadline expires in less than six weeks. Remember only 6.3 crore people are filing taxes, of which 3 crore may have zero tax liability. We cannot be a democracy of only voters. We need more income tax payers too.