The Centre will reportedly face a shortfall of .`50,000 crore in the direct tax collection target of Rs 12 lakh crore for 2018-19. Bulk of the shortfall is in personal income-tax collections that account for less than a quarter (23%) of the total tax collections. Income-tax data shows a 66.8% increase in the number of tax filers to 5.08 crore between financial years 2013-14 and 2017-18.
However, tax collection per filer rose by a mere 3.6% to .`82,555 over this period. Similarly, the number of taxpayers rose by 41% and those declaring incomes over Rs 1 crore even higher at 68% between assessment years 2013-14 and 2017-18. But, in absolute terms, only 81,344 people declared income above Rs 1 crore. No wonder India’s personal income tax-to-GDP ratio has been hovering at just about 2.5%.
The share must go up, given that indirect taxes are regressive. This is eminently feasible with mining of data on the goods and services tax (GST), electricity bills and, why not, Facebook posts on foreign travels and expensive parties. Reportedly, the revised target for GST collections too has been missed due to the cut in tax rates during 2018-19. Collections will become buoyant in the medium term, and with more data mining, that could yield a bounty in direct taxes.
The reason is simple. GST creates audit trails across the income and value chains, generating a broader base for direct taxes. But GST compliance should be eased further. And if tough action is taken against evaders, it will push up the cost of noncompliance higher than the cost of compliance and encourage people to pay up.
The tax administration should stop wasting its resources on pursuing salaried taxpayers, whose tax is deducted at source, and, instead, use technology to curb tax evasion in unlisted companies and among the self-employed.
This piece appeared as an editorial opinion in the print edition of The Economic Times.
via Mine Data to Boost Direct Tax Collections