Speaking at an Indian Express Group function on Monday, finance minister P Chidambaram pointed out that several assumptions made about the Indian economy would be blown to smithereens over the years to come. Luckily for him, he doesn?t have to wait long. Direct taxes are already working wonders. The 43% rise in direct tax receipts in the April to October period of this fiscal is a major leap. True, the economy is growing at a frenetic pace of 9%, which means a nominal rate of about 13%. If direct tax payers are expanding their earnings even faster, you would still get a receipts growth rate in the twenties. But the actual figure is significantly higher, with big jumps across all taxation categories, including personal returns. Tax collectors being a sober lot, not given to seeing double, what could possibly explain this?
Better tax compliance. Corporate India and the wealthy are displaying a new will to meet their obligations to the exchequer. This represents a major paradigm shift in Indian tax-paying behaviour. With the logic of public spending sinking in at long last, the old scourge of black money may finally go into decline. It may not be a coincidence that the growth in receipts from the banking cash transaction tax has been lacklustre. This tax, which tracks withdrawals from current accounts of banks, has grown by only 16% this year. This phenomenon is all the more significant in the context of the ongoing shift towards self-employment. Personal income-tax collections are not rising so fast merely because the number of salaried employees is increasing, but because the self-employed are coughing up their dues in ever larger numbers. If this signifies a new desire to clean up operations, all the better. For, this behaviour could easily extend to all manner of business practices, resulting in a more dynamic economy, freer of sleaze than ever before. This is good for the economy at another level, too. A higher dependence on direct taxes also makes the overall tax burden more progressive?with the well-off paying a larger proportion of their earnings. This could ease the indirect tax burden, which would turn economic activity more efficient by reducing its distortionary effects. Interestingly, another assumption that has been proved faulty is that India?s finances cannot do without disinvestment receipts. Thank taxpayers.
