Sunday, May 1, 2016

India tax base facts of the day

More definitive data released by the Department of Revenue that validate the narrow nature of India's direct taxation base.

In the period from 2002-03 to 2007-08 tax revenues and tax-to-GDP ratio rose impressively and revenues exhibited very high buoyancy. Unfortunately, since then trends have been disappointing. 
Interestingly, the 2002-08 period was accompanied by a significant broadening of the income tax base, which would have contributed to the high tax buoyancy. 

The disaggregated picture of income tax assessees for 2012-13 - a total of 31.19 million taxpayers with a net tax payable of Rs 3.896 trillion - reveals a disturbing concentration at the top of the income ladder. Just 0.001% of the taxpayers who had more than a billion in income contributed 37.62% of the total taxes. A very high 55.63% of tax assessees did not pay any tax and those with income below Rs 5 lakh formed just 14.62% of the tax revenues.  
In absolute numbers, 21,879 taxpayers paid tax more than Rs 10 million, just 2532 above Rs 100 million, 315 above a billion, and a mere 63 above Rs 5 bn! Like with corporate tax, exemptions hurt. In 2012-13, a total of Rs 15.56 trillion was returned, four times the total tax payable itself! Business income tax assessees were the biggest beneficiaries. Just 198 taxpayers claimed exemptions worth Rs 4.29 trillion!

As is more widely known, the story is much the same with corporate tax data for the country, available in the excellent MCA database.
Just 1945 companies had paid capital more than Rs 1 bn and 85% of them had PUC below Rs 5 million. In terms of taxation, for 2012-13, just 1044 firms had more than a billion in profits before tax.

In terms of specific challenges, arguably the two biggest obstacles to the country's sustainable growth are the very narrow corporate and income tax bases and creation of the massive numbers of jobs required to manage the transition from agricultural to a modern economy.

Update 1 (05.05.2016)
Livemint has coverage here and here.
Update 2 (10.05.2016)
More update from Business Standard here and here.

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