Union finance minister Yashwant Sinha has legitimate grounds for worry on the direct tax front. Collections were down by a whopping average of Rs 6,000 crore from the revised estimates for 2000-2001 and 2001-2002. Despite such a track record, he has set an ambitious target for the current fiscal: Mopping up 33 per cent more direct tax revenues from last years collections. Mr Sinha of course is loathe to see another shortfall in collections, but there is no way that this can be prevented unless the tax net is widened and revenue collection machinery streamlined, including weeding out endemic corruption among its officials. Updating the database on potential tax payers together with a more scientific revenue forecasting system is also imperative. Without all of this happening, there are no prizes for guessing what the Central Board of Direct Taxes will do to meet Mr Sinhas targets launch a raid raj to garner more revenues. Harassment and the much vaunted midnight knocks on prospective payers in search operations is hardly the recipe for improving collections. Neither do they work, nor do they create a culture of voluntary tax compliance, which is what is needed.
Broadening the tax base is surely the way forward, but is the tax machinery collecting revenues from those on its rolls For instance, how does one explain that the number of millionaires that is, those who filed returns above Rs 10 lakh are fewer in 2001-2002 when compared to 2000-2001 Surely, the country is far from becoming more egalitarian with reforms! Updating the rolls is necessary to enable it to tax services. The potential in this regard is enormous as it accounts for 50 per cent of GDP, yet service taxes amount to only 0.23 per cent of GDP. If the meagre revenues contributed by agriculture are added in, sectors of the Indian economy accounting for 75 per cent of GDP thus contribute negligible direct tax revenues. Towards this end, this newspaper had highlighted that 80 per cent of the burgeoning private hospitals and nursing homes are not in the direct tax net. Tax officials thus can consult the Yellow Pages to net in prospective tax payers. The point is to widen the net to collect more direct tax revenues rather than launch a counterproductive raid raj and harass the citizenry.