Widening of Tax base: Aspiring for new ideas but, not with old approaches, please!
Written by,
Rajan D. Morbia
M. Planning (Regional Planning)
B. E. (Civil Engg.)
Tax for welfare
It is a well-known fact that India is a welfare state. Socialism is embedded in the Constitution of India. Basically, for the welfare of the people especially the citizens with deprivations, the Government spends. For that purpose of spending, the Government gets monies from revenue, capital and non-debt receipts from deferent sources under the established law. To comprehend the situation of the Government, one need to have a look at the following facts. India had spent ₹ 1,55,141.47 crore in 1990-91 and ₹ 32,04,965.78 in 2013-14. India had revenue of ₹ 98,018.82 crore in 1990-91 and ₹ 23,23,056.84 in 2013-14. The gap between expenditure and revenue was ₹ 57,122.65 crore in 1990-91 and ₹ 8,81,908.94 crore in 2013-14. The deficit is understandable by comprehending these figures of fact. The most prominent source of revenue is tax receipts. The share of tax revenue in total revenue was 88% in 1990-91 and 87% in 2013-14. One now can imagine how such big role tax revenue has in the development story of India.
In India, tax collected is classified in two categories namely Direct taxes and Indirect taxes. Direct Tax is levied on the income, property or wealth of people, group of people, organisations or companies. In case of direct taxes the incidence and burden of tax is on same person or in other words a direct tax is borne entirely by the entity that pays it, and cannot be passed on to another entity. Indirect Tax is levied on production, consumption, expenditure (not on income or property); they are not levied directly on the final user. In case of indirect taxes the incidence and burden of tax may entirely not be on same person or in other words indirect tax may either entirely borne by the entity that pays it or may pass on it to another entity. In 1990-91, the share of direct tax and indirect tax collected in total tax revenue receipts was 14% and 86% respectively; while in 2013-14, those were 33% and 67% respectively. Notable is the fact that the share of direct tax collected has seen significant increase over the period of two and a half decade. The important merits of direct taxation are well known especially in the sphere of maintaining horizontal and vertical equity in the society. Within the kitty of direct tax, the share of taxes on income is quite considerable. In 1990-91, the share was 44% and in 2013-14, it is 35%. A decline in share is visible. Startlingly, the fact of the matter is that in India the total number of income tax payers is around 35 million only, according to a reliable study. It is to note that India is a country of more than 130 crore population with a mandate of being a social welfare state by the constitution of India. Well, astonishingly it is hard to believe that, even, out that 3.5 crore taxpayers, gigantic 85% pays tax for the income of ₹ 0 to ₹ 5 lakh!
Intentions for widening of tax base
It is quite obvious and sincere of the finance ministry that it feels too much concerned about widening of the tax base. The press information bureau states in a note that at the inauguration of the 31st Annual Conference of Pr. Chief Commissioners /Pr. Directors General/ Chief Commissioners /Directors General of Income Tax, the Finance Minister of India has ‘exhorted’ the senior officers of the income tax department to be prompt in redressing the grievances of the tax payers, expand the tax base in a non-intrusive manner while striving to achieve the revenue generation targets. The importance of tax base widening efforts is a need of the hour to get the economy on a desired growth path and at the same time the government is looking up to an internationally competitive tax regime with a stable policy and a non-adversarial tax administration. Another point to note here is the direction given by the minister of state finance. The minister has urged the officials of the department to brainstorm to come-up with radical ideas to double the tax-GDP ratio. A news piece, in the Economic Times, states that the top brass of the income tax department has been asked to individually give three suggestions, ideas or proposals which will enable the government to augment revenue collection under the direct taxes category in the country and subsequently widen the tax base. There is news that the government has directed the income tax department to take steps to widen the tax base and add at least 25 lakh new assesses every month during the current financial year 2015-16. This is a huge task and if successfully and appropriately done, it has the potential to be proved as a fillip for the efforts of economic development.
In the backdrop of this policy level discussion that the officials of the income tax department are keeping themselves busy with the grass root level tax administration carrying out a sort of survey to find out proper proposals and ideas. An opportunity had been there for the interested ones to listen one of the senior most tax administrators of India Shree Amaresh C. Shukla, Indian Revenue Service (IRS) in this regard. He is currently posted as Principal, Commissioner of Income Tax, Rajkot. A 1983 batch IRS officer is a fabulous articulator in Hindi, that is what one may mark if one utilises the opportunity to listen him. Under the ages of businesspersons and tax consultant associations of Kutch district, a lecture was arranged for all on the subject of ‘widening tax base program’ at an expensive hotel in the out skirts of the city of Bhuj on 21st of July 2015.
The lecture was packed with few announcements of the local income tax department and an explanation by the officer that the income tax department is in an aggressive mode, as such, for widening and deepening of tax base. With a sparkling analogy of ‘kauva’ and ‘hans’, it was made very clear to the tax consultants that the income tax department is in now quite an energetic state of affairs that all need to be alert as well as comfortable while dealing with the income tax administration in India. A non-tax payer, as a one who is not associated with tax administration as such and a tax consultant, can simply observe that the officer was with a positive outlook with a sense of balance in his postures as an authority to curb tax menaces and at the same time as an assertive facilitator for those who wish to pay tax as per the law stipulated. Before the key note speech by the officer, few of the senior tax consultants of the district had asserted their view about tax related compliance producers and related issues, collaboration within department and style of working at local income tax department, department’s and related agencies’ knowledge management approaches and most importantly the inconvenience faced by the tax payers. Few had posted their suggestions for tax base widening and deepening while speaking. But, the approach to the lecture seemed so cursory that many of the times, the speakers were unable to respect that the gathering was there to listen about ‘tax base widening’ proposals and issues but not ‘tax base deepening’ per se. The officer has uttered it bluntly but not without a point, that government is now aiming to be at your door step not to raid you but to facilitate you. There is no reason to feel afraid of the tax administration. The message of the government conveyed quite cunningly and effectively. He assured unsolicited that department is up to 80 per cent computerised and they have skill and will to take ‘tax base deepening’ measures quite rigorously, it is an alarm for those who run away from paying proper tax as per the rules. “Act, not just speak” dictum seems to be quite on his mind that the officer had announce a pakhavada for the refund related issues and asked the local administration staff present there to dispose the applications in following two weeks. He had impressed the gathering that he takes into consideration the grievances of the tax consultants quite smoothly. There were many other announcements and information for tax payers and consultants.
Sedate intellect was accompanied by the momentous remembering of the greats like Vivekanada and Vinoba Bhave, as the officer was an inspired human being; it seems, it has culminated in quite a persuasive and articulate speaker in him. Brushing the instances of the Rig Veda, informing the worried tax consultants that ‘except parbrahma, everything is imperfect’, the officer simply blanketed the gathering’s minds with spiritual springs and he asked them to work for Atma when the department asks them to help and assist for widening of tax base. He explained the gathering how it is like ‘working for Atma’ in the tax administration quite wittingly! A polite but powerful as a rock, message by the officer on behalf of the government was that it is high time that be alert and be a responsible citizen. Come out and pay tax for the development of nation; running away is not an option now since we are in the time of quite a robust information technology and communication age! The gathering was astonishingly convinced by the officer of higher rank that the department is looking up to fully automated, transparent, responsive, non-adversarial and non-discriminatory tax administration system. And, it will be a reality sooner or later but surely! Sounds of the national anthem quite all with velour and the gathering dispersed.
Contradictions and way to have new ideas
Now, notably a thinking mind can establish a contradictory observation by going through the event as such. Note, who were the hosts! The event was hosted by a body related to businesspersons of a district level stature along with the tax consultants association. Most of the tax payers had not encountered any public notice via newspaper or any. Well, observing the present people in the gathering, they were all tax payers- tax consultants and businesspersons of a good stature. Remember, the subject of the event was ‘widening tax base program’. It is understandable that yes, the tax consultants and businesspersons are associated with tax administration with higher degree than the non-tax payers, but the very purpose of the event, as a thinking mind may understand, was to collect the ideas for widening of tax base especially in the sphere of income tax. Since the tax consultants and tax payers know how the income tax department works, their very psychological approach is to get their grievances addressed when they are provided the opportunity to interact with such an officer of higher rank as it is something that is related to her bread and butter. To dispose of the grievances of the consultants of tax payers (who are those who are already in the tax administration system) helps deepening tax base more than widening tax base. The difference between widening and deepening tax base is again subtly to be understood. This interaction between the department and the ones who are already in and associated with the tax administration system perhaps can or may only help to improve the ‘existing’ system, a system based on a bit old and tested ideas. The very fact of the matter is that the system based and built on old and tested ideas is not helping achieving wide tax base that a nation like India deserves especially in the income tax sphere of matters.
Requesting, interacting and asking a practicing tax consultant to ‘inspire’ her acquaintances to pay tax is not a strategy that goes well with a thinking mind. Supposing an acquaintance of a tax consultant may be requested or inspired genuinely for paying income tax, back of the mind of a social and economic human there will be a birth of a suspicion that, in order to pay the tax I may have to pay fees to the one who is inspiriting me for paying tax- a tax consultant! It is contradiction. Though, it cannot be concluded that this strategy would be unable to produce results at all as the empirical study is not available to support, but one thing can be said surely, psychology it is unviable. It can help but it can’t be the most prominent strategy to widen tax base. Knowing all this, the even hosted was a misfit in the discourses if one may strictly think about having ‘new’ and ‘radical’ ideas for tax base widening. Well, but for sure this event may have provided other benefits to the community per se.
Aspiring for ‘new’ ideas, it is certain that ‘new’ minds are to be nurtured and asked. The non-tax payers of the day are the most potential laden pool of ideas which can help the administration. It is but for obvious reasons that they are not in know-how of the issues that the related people (i.e. tax consultants and businesspersons of high stature) find themselves associated with as the issues of mal practices and compliances arise when the norms of higher income slab is applied. It is because the quantum of monies and allied privileges offered are of attractive quality in those cases. After all, to widen the tax base, the government is looking up to the middle income group citizen to be covered in the tax system. With the growth in annual disposable income, India is to have more number of citizens who may pay tax. The concern is to make them feel comfortable to pay it.
Instead of arranging a talk on widening of tax base with businesspersons and tax consultants only, it would be appraisable to sit with the non-taxpayers. Of course, officers need forums to sit with them to do the advocacy for tax paying systematically. The resolve to this boils down to a creation of a forum. There is an idea around that there needs to be a ‘tax payers association’ affiliated with the tax administration system. The broad aspects of this can be discussed. There should be a ‘tax payers association’ at city and taluk level or according to the jurisdictions of the direct tax departments but at grass root level. To attract the non-tax payers to the system, the government can try to attract them by offering incentives or tax deduction for a fixed time, for example say 3 years. There is a huge benefit out of that. The non-tax payer would be included in the system and thus administration may have his tax related history and profile. At the same time with the measures taken by the department to let the tax payers feel comfortable, they can actually inspire the tax payers directly with their performance per se. No intermediary to contact the tax payers in inspiring them would be needed. Once the system is established, the department will be having a wide base of tax payers with whom they can contact and sit directly and try to govern the world of tax more efficiently with the public participation approach.
Here are the times where people live in an age where inspiring is only possible by performing. The point of contention is how one will communicate to the ones that they wish to be inspired that one is performing better than the past! Of course with the new approach, it is possible and not by the conventional, well thought older days’ approaches and systems. Let there be wide tax base for nation’s benefits only!
References (links):
http://finmin.nic.in/reports/IPFStat201314.pdf
http://www.finmin.nic.in/reports/IPFStat201213.pdf
http://www.yourarticlelibrary.com/tax/comparison-between-direct-and-indirect-taxes-with-figure/26391/
http://wealth18.com/number-of-income-tax-payers-in-india/
http://pib.nic.in/newsite/PrintRelease.aspx?relid=121992
http://economictimes.indiatimes.com/news/economy/policy/government-asks-top-income-tax-officers-to-ideate-for-widening-tax-base/articleshow/47663001.cms
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