Just over 41% of the total organised sector employees in the country filing income tax returns should indicate how poor tax compliance in the country is, finance minister Arun Jaitley said in his Budget speech in Parliament on Wednesday. Jaitley juxtaposed this number and the fact that just 76 lakh individuals of a total of 3.7 crore filing returns reported annual incomes of R5 lakh and above with the 1.5 crore cars sold in the last five years and 2 crore Indians flying abroad in 2015 alone to illustrate how income tax data with the taxman doesn’t square up with consumption levels.
The minister also cited bank deposits data from the demonetisation period (November 8-December 30,2016) to telling effect while speaking about the country’s black economy in his Budget speech—while amounts between R2 lakh and R80 lakh in banned notes were deposited in 1.09 crore accounts, with average deposit size being R5.03 lakh, 1.48 lakh accounts saw deposits of amounts exceeding R80 lakh with the average deposit being R3.31 crore.
Budget announcements include measures to encourage greater compliance and prevent generation of black money—capital gains tax liability on immovable assets has been lowered and duty sops will be offered for digital transactions infrastructure, though halving the rate for annual incomes between R2.5 lakh and R5 lakh will just give relief than boost compliance.
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The finance minister has, however, left unchanged the income bracket (R10 lakh and above) at which the top tax rate of 30% kicks in. At just 2.5 times the country’s per capita income, the threshold income is one of the lowest among comparable economies at which top rate applies, and this is probably what has ensured significant evasion—compliance in the R10-15 lakh bracket is just 10% compared to 20-25% in the other brackets. Jaitley could have created, say, a R10-20 lakh bracket and tax it at 20%, almost in line with what the Direct Taxes Code 2009 proposed. Increased compliance would have made up for the loss because of lowering the rate.