Peter pays, Paul evades 

Just around 1 per cent of Indians paid income tax in India, reveals the recently released official tax data. To be precise, according to the Central board of Direct Taxes (CBDT), 12.9 million Indians paid income tax who account for around 2.7 per cent of total work force in the country.

On the contrary, 55 per cent pay income tax in United States. There may be difference in levels of prosperity between India and the United States. Still, a large number of Indians are either not in the tax net or do not pay tax by evading it on some or other pretext.

Perhaps, one key reason for such a state of affairs is the unorganised and informal or largely unaccounted nature of the Indian economy. The data reveals that 84 per cent of non-farm employment is in informal sector, making it almost impossible to gauge their income to be taxed. Tax evasion breeds generation of black money.

The tax collections do not reflect the country’s growth scenario. But all this need not be due to evasion of taxes alone. The humongous inequalities create an optical illusion about India’s prosperity. The philosophy of tax reforms envisages widening and deepening the tax net to ensure buoyancy in tax revenues. But, declining levels of taxation coupled with myriad tax concessions contribute to the abysmally low tax paying population in India.

The unabated corruption in government also discourages people to pay taxes as they do not see any correlation between tax contribution and quality of public expenditure that impacts them. Despite tax administration becoming friendly since the liberalisation of Indian economy, people are still apprehensive to come into the tax net.

Thus, India has one of the lowest taxes to GDP ratios in the G20. India’s tax-GDP ratio stands at 18 per cent (central and state governments put together) which is lower than that in many sub-Saharan nations. Obviously, it is much lower compared to China.

But, there is a clear class bias in India’s taxation economy. Noted economist Jayati Ghosh says that the perception among the elites and the middle classes that they are the only ones who pay taxes is hugely misplaced. Tax incidence is even higher among the poor than the rich due to relatively higher levels of indirect taxation.

The share of direct taxes in the overall taxes fell from as high as 60.8 per cent in 2009-10 to 54.2 per cent in 2012-13 and further declined to 51 per cent, as per the provisional data for the fiscal 2015-16. The government’s largesse to the rich is called incentives, while for the poor and the low income groups it is dismissed as subsidies.

Semantics is used to justify economics. As per the budget document itself, the revenue foregone by the government due to tax concessions accounts for 4.5 per cent of GDP which is even higher than the fiscal deficit. The grotesque economics and hokey pokey in politics result in ghettoisation of society.