Daily Current Affairs – 2nd May, 2016

Daily Current Affairs – 2nd May, 2016

The curious case of the missing Indian taxpayers

A central but neglected problem in Indian political economy— Too many people, too few taxpayers–

  • Around 48 million people filed income tax returns in fiscal year 2015
  • Effective Number: Lesser than the above-stated as many of them had zero tax liabilities
  • Data to be compared with: 814 million people eligible to vote in the 2014 Lok Sabha election (one taxpayer for every 16 voters—an asymmetry that has profound consequences for national policy)


Why is there a need to pay taxes

To fund an effective state that protects national security, administers justice, builds infrastructure and funds a social security net to protect people against sudden shocks to their income

Present: Flawed social contract between the Indian people and the Indian State (a political system that cares more about spending to buy votes rather than building a more effective tax system that will spur economic growth)

Massive Tax evasion

  • Very few admit to having an annual income of more than Rs.10 lakh a year (an incorrect number)
  • More concentration on chasing the black money stashed away abroad instead of cracking down on domestic tax evasion— an explanation could be- the way political parties are funded as well as the cash that needs to be dispensed at every election


Matter of Concern

A call for Strong State: The state of illusion with which this demand is demanded to be fulfilled—a strong state that can deal with threats to national security or for a redistributionist state that will fund lavish social security programmes— paying little attention to the source of its becoming a reality (Where will the fund come from?)

Poor and unhappy: The larger share of dependence upon indirect taxes is considered to be regressive rather than progressive as they put a higher burden on the poor.

  • Due to the failure in bringing enough well-off Indians into the direct tax net, the country has been mobilising revenue through indirect tax collection
  • 2015-16- direct taxes contributed only 51 per cent of the tax revenue, lower than in recent years (and even the government’s expectations) and the lowest since 2007-08.
  • An increasing share of indirect taxes in total revenue collection is cause for alarm because indirect taxes affect all Indians alike, rich and poor; given that the poor generally spend a greater fraction of their income on essentials than the rich do, with wider indirect taxation, they end up paying a higher individual tax rate than people considerably wealthier.


IASbaba’s Views:

As the Indian state is fiscally constrained because of inadequate direct tax collections, the future tax reforms need to be a combination of better tax administration (for more Indians pay income tax)

  • The direct tax revenue base needs to be made broader so as to encompass the various developments that the economy is trying to bring about—by scaling up social and infrastructure investments while maintaining a semblance of fiscal discipline
  • The time series data need to nudge policymakers to reframe tax governance priorities and rejig the direct-indirect tax ratio more equitably and progressively.
  • Meaningful reforms need to be pushed further (taxing large farm incomes and rationalising bounties enjoyed by the well-off) to widen the base
  • An effective political will always be the final answer to matching the databases already available for preventing tax evasion—both domestically as well as internationally.

Connecting the Dots:

  • What do you mean by direct and indirect taxes? Present your views on the importance of their existence in the workings of the world economy.
  • Time to put an end to Film CensorshipWhy in news?
    • Recently Shyam Benegal committee submitted its report to Ministry of Information & Broadcasting regarding revamping of central board of film certificate (CBFC) and also wrt Cinematograph Act/ Rules.

    Why was the committee set up?

Share this post