Column : Tax administration, heal thyself

Until 2005-06, India, via CAG reports on the ministry of finance, had access to data, some data, on the distribution of income and taxation. After that—whoosh—all the information stopped. Now the reports only reveal the total number of taxpayers in the economy, about 3.24 crore, out of which about 1 crore file tax returns but don’t pay any tax because their incomes are below Rs 1.8 lakh.

What the tax department, and all of us, should be interested in is maximizing tax revenue. The table reports all the relevant tax parameters for fiscal 2011-12—who pays taxes, who should pay taxes, rates of taxation, revenue collected etc.

Some suggestive conclusions:

The total amount of personal income tax (PIT) that could have been collected in 2011-12 was R5,17,000 crore or R5.17 trillion. The total amount that was collected was R1.72 trillion indicating an overall compliance rate of 33%. So, two-thirds of the taxable population avoided paying taxes altogether or paid two-thirds less taxes than they should have.

The dominantly large share of the flow of black money each year is indicated by the gap in tax collected and tax due and for 2011-12, this gap, R3.45 trillion, is about 4% of GDP. For the ten years 2002-03 to 2011-12, 4% of average GDP is R20 trillion. This suggests that the recent estimates pegging black money at around R25 trillion are in the right ballpark—and that our “missing tax” estimates are broadly correct.

The largest share

... contd.