Similar aggregated income-range-wise data for individuals and for other entities is not available in the Revenue Forgone Statement
On a recent visit to India, Thomas Piketty, the author of Capital in the Twenty-First Century, commented that the lack of reliable income-tax statistics hampers his research work on income, wealth and inequality for India. Authentic tax statistics are necessary not just for research on income and employment, they are also a prerequisite for the formulation and evaluation of fiscal policy.
These statistics complement other social and economic data and can be extensively used within government as well as by business, academia and non-governmental organisations. Researchers have long complained about the lack of standard income-tax statistics in India—something which tax administrations across the world publish on at least an annual basis. The UK’s tax administration—Her Majesty’s Revenue and Customs—regularly publishes statistics on the number of individual income-tax payers, their share of total income-tax liability by income range, the percentage of earnings paid in income-tax, etc. In South Africa, the ministry of finance and the tax administration (South African Revenue Service) jointly publish annual tax statistics. They cover aggregate tax revenue collection trends, assessed personal income-tax revenues of individual taxpayers, taxable income by income group, age, gender, residence and source of income, corporate income tax revenues and taxable income by income group, sector and type of business as declared in the tax returns.
Data for the compilation of statistics may be drawn from either surveys or administrative sources based on factors such availability, quality, administrative costs and the compliance burden on the respondents for collection of data. The use of administrative and computerised records as a source for statistics is generally far less costly than the conducting of a specific purpose survey. There is no additional burden on respondents as statistics are compiled from data already provided by citizens and businesses during the course of their engagement with the government. Also, as administrative and computer records generally cover an entire population, in contrast to a sample survey, the statistics derived from them are more reliable.
The Indian tax administration used to publish All India Income Tax Statistics until 2000, after which they were discontinued. Income-tax statistics are currently spread disparately across annual reports of the Department of Revenue, Annual Economic Surveys, CAG reports, the Revenue Forgone statement published in the annual Budget documents, reports of the Parliamentary Standing Committee of the ministry of finance, answers to Parliamentary questions and the administrative handbook of the Income-tax Department. The recent Economic Survey for 2015-16 uses tax statistics along with other data to arrive at conclusions about India’s fiscal capacity.
With the extensive coverage of the income-tax return electronic filing (e-filing) initiative, a substantial majority of returns are now e-filed and their data is available in digitised format. All company returns are compulsorily e-filed. This data is extensively used to prepare a comprehensive tax expenditure or Revenue Forgone statement which is published as part of the annual Budget papers. The Revenue Forgone statement contains data on the revenue forgone on direct tax exemptions granted to three classes of entities—companies, individuals and other entities (firms etc).
In the case of companies, the Revenue Forgone statement also contains data on companies classified in ranges based on their profit before taxes. Aggregated data is then reported by number of companies in each class, percentage share of each class in the total income of all companies, percentage share of each class in the total corporate income tax payable by all companies, effective tax rates of each class, etc. Data on effective tax rates for companies operating in different business sectors is also provided.
The gap in the current statistics is that similar aggregated income-range-wise data for individuals and for other entities is not available in the Revenue Forgone statement. Though the mandatory e-filing coverage for individuals and for other non-corporate entities is not 100% (as in the case of companies), it is substantial. Now, only individuals above the age of 80 or individuals/businesses with incomes below R5 lakh have the option to file their returns manually, that too if they are not seeking a refund. Even for such individuals, there are e-filed statistics available (if they are drawing salary income) from the salary withholding returns filed by their employers. Therefore, comprehensive tax statistics in the Revenue Forgone statement can also be provided for individuals and for other non-corporate entities. Later, this data, along with other tax collection and assessment data, could be brought out as a separate statistical publication. This would fill the current gap in our national income-tax statistics, bring them in line with those provided by other tax administrations, and facilitate robust analysis of tax policy, fiscal and governance issues.
The author is Of Counsel, BMR & Associates LLP, and former joint secretary, ministry of finance