Thursday, July 30, 2009

Needed - a two-tier tax enforcement machinery?

Businessline reports that an increasing number of the rich in India are now beginning to file income-tax returns. It points to a sharp rise in the number of assessees who filed return of income between Rs 1 crore and Rs 5 crore a year during the last three financial years, increasing from 15,473 to 22,341 and to 26,275 over the three years till 2008-09.

Now, by any yardstick, 26,275 is a laughably low figure for those who filed incomes in the range of Rs 1-5 Cr. The same is the case with those with incomes greater than Rs 5 Cr. I am sure that even a cursory listing of our most likely crorepatis - owners of major industrial houses, higher level corporate executives, software and technology millionaires, bankers and financial market professionals, rich politicians, high earning leading professionals from various fields, film artists, sports persons, and those purchasing high value purchases like real estate, vehicles etc - should easily yield a number that is a multiple of those assessed now.

Now, I am not very aware of the rules and regulations, and the bureaucracy and limitations that the former imposes on our taxation system. But even assuming a very versatile and easy to evade system, for administrators, it surely ought to be easier to focus a couple of lakhs of high income assessees, as against managing the entire tax base. Presumably, this would require a two-pronged approach by the tax enforcement machinery. In addition to the regular tax administration, there will have to be focussed attention on these high value assessees. Though, not supported by figures, I am inclined to believe that the much discussed and acclaimed widening of tax base over the last decade has been effective more at the bottom of the tax pyramid than at the top, where it continues to remain constricted.

It is in this context that the ongoing debate in the US, where there is a gathering momentum, even among conservatives, on increasing marginal tax rate for those at the top of the pyramid, atleast to finance long-term challenges like health care and social security.

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