A wider net: on the expanding tax base

As the tax base widens, the Finance Minister should cut the share of indirect taxes. 

The demonetisation(विमुद्रीकरण) of high-value currency notes and the advent(arrival-आगमन) of the goods and services tax regime(rule/system-व्यवस्था) have triggered(prompt/initiate) a surge(rise/hike-वृद्धि) in the number of those filing taxes in the country. The Economic Survey argues(assert/claim-तर्क) that the large gains on the indirect and direct tax fronts indicate that the primary intentions(motive/idea-इरादा) behind the two big-bang economic strides(progress/advance-प्रगति) — of formalizing the economy and bringing more income into the tax net — have been met to some extent(area/boundary-सीमा). From about 59 million individuals who filed income tax returns or whose tax was deducted at source in 2015-16, the number of tax-filers rose by 10.1 million since the note ban. Stripped(empty/clear-छीन लिया) of statistical adjustments to avoid a bias(partiality/prejudice-पक्षपात) in findings, the Survey assesses(evaluate/judge-आकलन) that roughly 1.8 million, or 3% of the existing compliers, started paying up. 

Many of them are reporting incomes close to the ₹2.5-lakh threshold for personal income tax, so this may not swell(expand/bulge-सूजना) the exchequer(fund/treasury-कोष) much. But it holds potential for growth as the new taxpayers progress in their vocations(business/profession-पेशा). Personal income tax collections are expected to rise to a historic high of 2.3% of GDP in 2017-18, compared to 2% between 2013-14 and 2015-16. This may seem glacial progress but could be considered a tipping point(turning point) in a country where just 4% of adults pay personal income tax, though the government reckons(calculate/estimate-गिनती करना) that number should be 23%.

The Survey finds a 50% increase in unique indirect taxpayers in the first six months of GST, with around 10 million registered taxpayers now compared to an estimated 6.5 million pre-GST. The GST regime(system/rule-व्यवस्था), despite the initial chinks(chaos/disorder-अराजकता), could end up boosting India’s macro-economic stability by breaking what the Survey terms ‘inertia’ of the tax-GDP ratio. This ratio for the Centre has remained at the same level since the 1980s, though the economy grew at an annual average of about 6.5%. The Survey has noted that both of India’s underlying macro weaknesses — the fiscal and current account deficits(shortfall/deficiency-घाटा) — tend to get exacerbated(worse/damage-ख़राब करना) when oil prices move up. A wider tax base could at least help tackle(deal with-निपटना) the former. Fixing exporters’ GST woes(distress/sorrow-संकट) and continuing to ease the transition(epidemic-संक्रमण) pains under its new features, such as e-way bills to deter(stop/clog-रोकना) evasion(avoid/elude-बचना), would be critical(vital/important-महत्वपूर्ण) to attain the 7%-7.5% growth projected for the coming year. 

At the same time, the government needs a road map to expand(spread/enlarge-विस्तार) the direct tax pie by pruning(cut/trim-छटना) blanket exemptions(discount/rebate-छूट) for vocations(business/profession-पेशा) such as farming and using a more proactive(dynamic/motivate-सक्रिय) Big Data-driven approach to target evaders. The government must reward this tax base expansion by offering the ‘compliant’ some relief in the Budget, even if it means slashing(effective/cut) high duties on petroleum products. After all, high indirect taxes pinch(rob-लूटना) the poorest the most.

Demonetisation: An act of stripping a currency unit of its status as legal tender. It occurs whenever there is a change of national currency.