Day 12 – Q 2.What are your views on the level of tax compliance in India? What measures have been taken by the government to increase tax compliance? Discuss.
2. What are your views on the level of tax compliance in India? What measures have been taken by the government to increase tax compliance? Discuss.
भारत में कर अनुपालन के स्तर पर आपके क्या विचार हैं? कर अनुपालन बढ़ाने के लिए सरकार ने क्या उपाय किए हैं? चर्चा करें।
Increasing tax compliance is a constant worry of tax authorities around the world and this is more pronounced for developing countries like India that seek to achieve numerous social and economic objectives through tax collection and inventives.
Tax Compliance in India:
- Tax structure in India is divided into direct and indirect taxes where direct taxes are levied on taxable income earned by individuals and corporate entities while indirect taxes are levied on the sale and provision of goods and services.
- Every tax payer is required to undertake certain compliances like Annual filing of return of income, report of audit under the Income Tax Act, etc.
- Historically, rate of tax compliance is low in India with only 36% of all individual taxpayers in organised and unorganised sector filing tax returns (Finance Minister). But recent data shows this at even low level of 11.6% among individual taxpayers.
- Further, only 1.5% of Indians pay income tax out of which there are large disparities within the taxpayers too as bottom 23% of the income tax is contributed by 93% of the taxpayers. This reflects at the macroeconomic level where India has a low tax to GDP ratio.
- Recent data further throws light on the low compliance rates where less than 50% of Doctors pay taxes and only 1/3 rd of the CA’s pay taxes.
Measures by Government to increase tax compliance:
Age old wisdom of Chanakya needs to guide the tax collection and compliance in India where he opined that taxes should be collected like bee collecting honey i.e. in right amount and without inflicting pain. Such an ideal would help in improving tax compliance and government has undertaken following measures to make India a tax conpliant society:
- Demonetisation – the act of stripping a currency unit of its status as legal tender which was undertaken to combat tax evasion via ‘black money’ held outside the formal economy. It helped in increasing formalisation of economy and the consequent scrutinizing of bank deposits.
- Goods and Services Tax – introduction of GST in 2017 has been termed as one of the biggest indirect tax reforms in country. It is a comprehensive multistage, destination based tax which follows a dual model. This has helped in reducing compliance costs considerably.
- PAN-Aadhaar Linkage – has helped in getting rid of fake PAN cards, identify tax evaders, curb black money circulation and make it easy for Taxpayers to file returns. Further, legitimacy of returns has also been improved due to foolproof authenication and verification procedures incorporated.
- Project Insight – a tax tracker based on big data where government will put to use a range of non-traditional but effective sources of information to help tackle tax evasion and aviodance. This is inspired from ‘Connect’ program of United Kingdom.
- Form26AS changes – the annual consolidated tax statement which is based on PAN which has helped in simplification of tax procedures and compliance.
- Digitalisation – promotion of digital transactions and increasing formalisation of economy have helped in reducing the possibilities of hiding income. Further, tech interventions have helped taxpayer’s in easing compliance and assessments.
- Behavioural economics – incorporation of behavioural economics and employing social norms to nudge individuals to pay their taxes has helped improve compliance. Largescale advertisements by CBDT are efforts in this direction.
- Rationalisation measures – incorporated through 2018-19 budget have empowered agencies and enforcement authorities towards greater scrutinizing powers which have helped in better compliance.
These measures along multi- sectoral efforts on part of government is helping towards the goal of making India a tax compliant society from a non-tax compliant society.
A healthy functioning economy is based on equal participation of all stakeholders where law-abiding entities are favoured towards the goal of making India a low tax rate, high tax compliance nation where each person pays a moderate rate of tax.