“Aggressive tax mobilization measures are required for raising income tax collections, we have done some reforms in tax policy but are yet to do any reforms in tax administration” said Montek Singh Ahluwalia, Former Deputy Chairman of the Planning Commision. He was speaking at a panel discussion on ‘Do We Tax Enough? And Do We Tax the Right People?’ held at India International Center, New Delhi recently.
Ahluwalia felt that India needs to raise property tax and start taxing agriculture “It is not that the constitution prevents agriculture from being taxed, it simply says it is the state government that can tax agriculture and no state wants to do it. The other loophole is property taxation, we are probably paying hundredth of the property tax that people pay in the US.”
Professor C P Chandrasekhar, Centre for Economic Studies and Planning felt the need to tax financial wealth in order to raise tax collections “financial wealth has become significant in recent years after long time of deliberation the government went for a securities transaction tax on purchase and sale of shares, this tax also has positive role in preventing speculation in the stock markets. There is a lot more that can be done.”
Dr Rajiv Malhotra, Executive Director of the Centre for Development and Finance, OP Jindal Global University highlighted how low our income tax collection is even when compared to other developing economies
“Even Kenya with an economy that is half of the Indian economy has a higher tax revenue ratio than us. Brazil’s tax to GDP ratio is over 30% why are we not collecting enough direct taxes? Part of the reason is that most of our labour is in the informal sector.”
Dr Rajiv Malhotra highlighted the level of income underreporting that takes place in India and the amount of tax that remains uncollected due to it “Since tax collection is not made public by revenue collection department. What we did was to regenerate income distribution from NSS of consumption distribution using some transformative assumptions. As per this we prepared the income distribution data for 2011-12. In that year there were 3.24 lakh Income tax payers in India and the total income tax paid from these people was 2 lakh crore. Our calculations concluded that if everybody had reported their income more honestly the figure of 3.24 lakh would be 8 crores under very conservative assumptions. And the tax collected would be 8 to 14 lakh crore depending on the assumptions. This amount was good enough to wipe out the central fiscal deficit.”