India needs an immediate solution to the tax evasion problem
If filing tax to the government by an individual can anyhow be connected with the degree of patriotism of a person, India presents a dark picture to the world. The Revenue Department recently issued notices to 35,000 assessees who have failed to file I-T returns. Similar notices were sent a few weeks ago to an equal number of people. But the bigger shock was that among those 70,000, only 10,000 felt it necessary to disclose their incomes and filed tax returns in response to the letters. This is putting tremendous pressure on the Revenue Department, which has a target to generate revenue of Rs.5.65 lakh crore under the direct taxes category for the current fiscal year. Evading taxes is more of a norm than an exception in India. Everyone, starting from an individual to a giant corporation, finds it conevenient to cheat the government by evading taxes. This is why in spite of being a country of 120 crore people, there are only 3 crore people who pay taxes. How much does this evasion cost the nation and its economy?
Tax to GDP ratio is a very relevant indicator to understand the strength of an economy. Unfortunately, India scores poorly at it. While 70% of the nation’s income comes from income tax for developed countries, it is only 18% for India. Moreover, the direct tax contribution is 60-65% for rich countries while India gets merely 35%.
That is why India is termed as a ‘poor tax performance’ country, ranking at the bottom even among the BRIC nations in tax collections. However, all this dodging affects the economy severely. According to a research article published by Businessweek, India losses Rs.14 trillion ($314 billion) every year due to tax evasion. For the uninitiated, income tax rate has dropped down to 30% from 97.5% in 1971. In fact, the corporate tax incentives too are diluting our tax collection. For instance, states like Uttarakhand and Himachal Pradesh provide tax rebate for setting up manufacturing units. So many manufacturers open their subsidiaries in those states only to fully exploit the tax benefits. This way, India ends up losing Rs.800 billion every year.
Thus, the government cannot ignore the implications of revenue foregone as a result of tax evasion. There is a need for spreading greater awareness of tax payment. At the same time it has to show people that it is making the right use of the tax collected as people have lost faith in the government and have no idea how the money is spent.
If filing tax to the government by an individual can anyhow be connected with the degree of patriotism of a person, India presents a dark picture to the world. The Revenue Department recently issued notices to 35,000 assessees who have failed to file I-T returns. Similar notices were sent a few weeks ago to an equal number of people. But the bigger shock was that among those 70,000, only 10,000 felt it necessary to disclose their incomes and filed tax returns in response to the letters. This is putting tremendous pressure on the Revenue Department, which has a target to generate revenue of Rs.5.65 lakh crore under the direct taxes category for the current fiscal year. Evading taxes is more of a norm than an exception in India. Everyone, starting from an individual to a giant corporation, finds it conevenient to cheat the government by evading taxes. This is why in spite of being a country of 120 crore people, there are only 3 crore people who pay taxes. How much does this evasion cost the nation and its economy?
Tax to GDP ratio is a very relevant indicator to understand the strength of an economy. Unfortunately, India scores poorly at it. While 70% of the nation’s income comes from income tax for developed countries, it is only 18% for India. Moreover, the direct tax contribution is 60-65% for rich countries while India gets merely 35%.
That is why India is termed as a ‘poor tax performance’ country, ranking at the bottom even among the BRIC nations in tax collections. However, all this dodging affects the economy severely. According to a research article published by Businessweek, India losses Rs.14 trillion ($314 billion) every year due to tax evasion. For the uninitiated, income tax rate has dropped down to 30% from 97.5% in 1971. In fact, the corporate tax incentives too are diluting our tax collection. For instance, states like Uttarakhand and Himachal Pradesh provide tax rebate for setting up manufacturing units. So many manufacturers open their subsidiaries in those states only to fully exploit the tax benefits. This way, India ends up losing Rs.800 billion every year.
Thus, the government cannot ignore the implications of revenue foregone as a result of tax evasion. There is a need for spreading greater awareness of tax payment. At the same time it has to show people that it is making the right use of the tax collected as people have lost faith in the government and have no idea how the money is spent.
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