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 maximising 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 Rs 517,000 crore or Rs 5.17 trillion. The total amount that was collected was Rs 1.72 trillion indicating an overall compliance rate of 33 per cent. 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, Rs 3.45 trillion, is about 4 per cent of GDP. For the 10 years 2002-03 to 2011-12, 4 per cent of average GDP is Rs 20 trillion. This suggests that the recent estimates pegging black money at