During 2018-19, the union government got net tax collection [after devolution to states] of Rs 1317,000 crore against the target of Rs 1484,000 crore leading to an unprecedented shortfall of Rs 167,000 crore – the shortfall being in both GST [Goods and Services Tax] and direct taxes. Committed to avoid any slippage in fiscal deficit target for the year, it was forced to reduce expenditure which even led to deceleration in GDP [gross domestic product] growth to 6.8% – lowest during the 5 years of Modi – dispensation.
This is disconcerting when seen in the backdrop of far reaching reforms implemented by Modi – government particularly GST [introduced on July 1, 2017] and demonetization [announced on November 6, 2016] – a major objective of both being to curb tax evasion by bringing millions of persons hitherto not paying taxes under the gaze of taxman and make them pay up.
That tax evasion was happening on a massive scale is confirmed by the revelations in a Household Survey on India’s Citizen Environment & Consumer Economy [ICE 360° Survey], conducted by the People Research on India’s Consumer Economy [PRICE] for the reference period, April 2015 to March 2016 [the survey covered 61,000 households across 24 states] when seen in juxtaposition with the income tax data for that year.
The analysis shows that there are 68,000 individuals earning > Rs 5 crore a year as against only 5,000 people with such income paying tax. Thus, for every person with income > Rs 5 crore paying tax, there are 13 persons earning that much but don’t pay. Likewise, the number of persons with income between Rs 1 crore and Rs 5 crore could be 10 times those who pay tax in this income range. In the Rs 50 lakh – Rs 1 crore income range also, persons escaping the taxman’s radar are 11 times those who actually pay up.
A large number of businesses and professionals were either not declaring their income or under-reporting it by a huge margin resulting in mountain of cash [albeit unaccounted] with them. The rationale behind demonetization was to force them to bring this cash to the bank [not doing so would lead to its automatic destruction] and make them pay tax. On the other hand, GST was intended to ensure that businesses could not hide their transactions thereby compelling them to pay taxes – both indirect and direct.
To realize the full potential of reforms in terms of required boost to tax mop-up, the government had also taken a series of complementary measures such as linking bank accounts to PAN, linking PAN to Aadhaar, keeping an eye on all high value transactions and use of advanced ‘data analytics’ for analyzing the data.
These reforms/measures have led to a big jump in the number of return filers from 36 million in assessment year [AY] 2014-15 to about 84 million in AY 2018-19. Of the 48 million added during this period, 30 million filers were added during AY 2017-18:16 million and AY 2018-19:14 million. But, this has not led to commensurate increase in tax collection as tax evasion – especially by those in the high income range – continues unabated.
In his Independence Day address on August 15, 2017, prime minister, Modi informed that following note-ban, during November 9 – December 30, 2016, the banks got ‘unexplained’ cash of over Rs 300,000 crores. He had also indicated that 1.8 million persons with income beyond known means were under scrutiny.
However, this exercise has so far yielded tax recovery of only about Rs`6,600 crore. Taking tax @30%, this would translate to capturing corresponding income/cash of about Rs 22,000 crore. This is a pittance 7% of the total unexplained cash and reflects on the inability of the I-T department get the concerned individuals/entities pay tax. What then, explains this anomalous scenario?
To get an idea, one only need to look at the reports of over two dozen I-T officers [including Additional Commissioner, Joint/Deputy Commissioner] being forced to retire prematurely. Most of them have been charged of indulging in corrupt practices and amassing wealth disproportionate to their known income. This may have a lot to do with these top brass in the department misusing their position to let hoarders of unaccounted cash/income escape payment of tax by entering into quid pro quo arrangement with the latter. When, those who are expected to implement the law themselves start colluding with tax dodgers/violators, the revenue is bound to fall short.
In the area of GST also, transactions involving tens of thousands crore have escaped the taxman’s radar. Additionally, the authorities have come across numerous instances of entities claiming input tax credit on the basis of fake invoices. That this is happening despite the GST Council implementing anti-evasion measures such as introduction of e-way bill and matching of invoices [from the beginning of last financial year] points to the role of corrupt officials working hand-in-glove with the dubious operators.
Modi has zero tolerance for corruption and implemented tough measures to unearth unaccounted income. Yet, if evasion is rampant, it shows the intensity of rot in the system. It has not only affected the ability of the government to meet tax collection target year-after-year but also meant disproportionately higher burden on honest tax payers.
The highest tax rate kicks in at a relatively modest income level. It was in budget for 2012-13 that the income tax slab for the marginal rate of 30% was increased from Rs 800,000/- to Rs 1000,000/-. Over the six years since then, the value of money has eroded substantially, but the threshold for highest tax bracket remained unchanged.
In a democratic set-up, things can’t be dictated by the Prime Minister alone. Ideally, people on their own should fully pay taxes due from them. More crucially, the bureaucrats need to work honestly and efficiently. Above all, the judiciary should play its due role in creating an atmosphere of strong deterrence.