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Signalling taxing times ahead, the Economic Survey says the economy’s fiscal capacity can be improved by a sharp widening of the tax net from the current 5.5 per cent of income earning individuals. At present, nearly 85 per cent of the population is outside the tax bracket.
Stating that India has one of the lowest taxpayer bases in the world, the Survey underlined the need to build the fiscal capacity of the State to improve its spending.
Don’t raise threshold“Reasonable taxation of the better-off, regardless of where they get their income from — industry, services, real estate, or agriculture — will also help build legitimacy,” it said, adding that the government can also refrain from raising exemption thresholds and allowing natural growth in income to increase the number of taxpayers.
“Taxation is not just about financing spending, it is the economic glue that binds citizens to the State in a two-way accountability relationship,” it said.The Survey pointed out that if the threshold had been maintained at ₹1,50,000 (the threshold limit in 2008-09), there would have been an additional 1.65 crore units incorporated within the taxation system and tax revenues would have increased to about ₹31,500 crore.
“India’s tax-GDP would have increased by 0.32 per cent just by not having raised the threshold so generously,” it said. While India does not necessarily under-tax and under-spend, Chief Economic Adviser Arvind Subramanian said the ratio of taxpayers to voters is just 4 per cent though it should be about 23 per cent for a country at India’s level of economic and political development.
Subramanian also referred to China’s taxation policy, where the income tax exemption limit is not raised very often.
Calling for concrete measures to boost exports, the Survey also called for scrapping countervailing duty exemptions.
“India should eliminate all the policies that currently provide negative protection for Indian manufacturing and favour foreign manufacturing,” it said, adding it can be ideally achieved by quick implementation of the Goods and Services Tax regime.
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