While direct tax collection has risen by a whopping 94% between FY07 and FY11, the taxpayer base has just risen 5%, indicating the tax system is loaded against the existing taxpayers. The Central Board of Direct Taxes targeted a 15% growth in the number of taxpayers, but it achieved only 1.5% annually during this period.
With a population of over 120 crore, 17 crore have a permanent account number (PAN) and, of these, mere 3.6 crore file income tax returns. So, only 3.3% of the country’s population is in the tax net. This is very low compared with 46% in the US and 39% in Singapore. Ideally, according to the Tax Administration Reforms Commission (TARC) calculations, there should be at least 6 crore potential taxpayers.
Moreover, the gap between PAN card holders and number of taxpayers is growing over time. While the number of PAN card holders increased by 175% during FY06 to FY11, the number of taxpayers in the same period rose only by 17%. About 90% taxpayers are in the R0-5 lakh income bracket, which just yields 10.14% of the total tax collection. The bulk of the tax (63%) is collected from people with income above R20 lakh, but it comprised just 1.1% of the total tax base. Similarly, there is a huge gap between companies that are registered but have not filed income tax returns. Only one-third of registered persons under service tax filed returns and half of registered taxpayers are not filing central excise returns.
The taxman must effectively use the data presented in the TARC report to identify non-payers.
