The government, it is true, did not get much traction in the post-demonetisation PMGKY amnesty scheme, but going by the increase in the number of income taxpayers and those e-filing their returns, this may change over the next few years. The number of e-filed income tax returns in FY17 was up to 5.29 crore from 4.33 crore the year before—in FY08, this was a mere 21.7 lakh; e-filing is critical since it allows electronic matching of this data with other information bases such as those from credit card companies on how much money is spent by their clients. It is because of this that, on Income Tax day on Monday, CBDT chairman Sushil Chandra said, “It was a myth that we have 3-4 crore assesses”—the number is, in fact, currently 6.26 crore if you include those who have paid advance tax or have their tax deducted at source. With the scrutiny of post-demonetisation cash deposits still on—the initial list of 17.9 lakh persons has been whittled down to a more manageable 60,000—chances are this could rise further.
What was started by demonetisation will be completed by GST—indeed, as this newspaper has argued before, GST is a more powerful and far less disruptive tool; a lot of the protest against GST, by the textile industry, for instance, is related to the fact that income tax evasion is also high. Since the process of invoice-matching will force assesses to declare their genuine incomes, over a period of time, the tax base will increase significantly. If, for instance, a trader is forced to declare a 200% jump in transactions, surely he will also have to declare a higher personal income as a result of this—by how much this will increase remains to be seen.
There is then, Project Insight, a computerisation of all databases with extensive search and matching facilities—it is expected to be operational this financial year. Once this is done, and the Aadhaar-linking of PAN numbers ensures the number of fake ones are weeded out over the next few months, the taxman will have a very good estimate of expenditure and will match this with income statements. Needless to say, finance minister Arun Jaitley needs to rationalise the tax structure—the top rate of 30% on an income of just Rs 10 lakh certainly kicks in too early and encourages the ‘missing middle’ to understate incomes. Combined with the disclosure from GST and Project Insight, over the next few years, India’s direct taxes should rise significantly.