cent on super-rich incomes will yield about Rs 2,600 crore. Alternatively, the government could make an effort, with support from its tax administration officials, to reduce corruption, reduce black money, and increase taxation of the top 7 per cent. If compliance in this group was brought to only the average of the economy — that is, 30 per cent — that alone would generate an extra Rs 35,000 crore, that is, five million extra taxpayers, paying an average tax rate of only 10 per cent, on average incomes of Rs 7 lakh. Okay, if tax administration increased compliance by only 3 percentage points, from 10 per cent to 13 per cent among this middle income group of Rs 5 to Rs 10 lakh, the extra revenue gained would be Rs 5,250 crore or double that gained from putting a 3 per cent surcharge on the super-rich.
These simple calculations yield at least three recommendations. First, it should be mandatory for the finance ministry to release data on tax compliance by income groups — a practice common in most economies in the world. Surely, no one can oppose the release of this statistic, so why isn’t it being practised? Possibly because it will cast a very black shadow on the workings of the tax administration in India? Second, the biggest revenue gainer is via an increase in compliance, especially for the middle income group. Third, stop thinking of populist measures like surcharges on the super rich, or copy French measures like increasing tax rates for anybody. If any such measures are introduced in the budget, it would not be a “responsible” budget as the finance minister has promised — and not responsible by a long shot.
The writer is chairman of Oxus Investments, an emerging market advisory firm, and a senior advisor to Blufin, a leading financial information company