India

BUDGET 2020 MUSINGS

on
January 8, 2020

PART-3

DO INDIANS PAY TAXES HONESTLY?

1. INDIVIDUALS

1.1. The MODI 1.0. GOVT’ s massive efforts to increase the tax base and make people pay taxes honestly by a sustained awareness campaign and harnessing of Information Technology , have brought in the following outcomes.

2. The tax base increased by 80% , from 3.31 crore IT Return filers to 6.85 crore filers by the end of FY 2017-18!

3. Hold on! Let us now look at the taxes paid by these IT Rtn filers or ” Assesses”:–

3.1. 2.02 Cr filers paid ZERO tax;
3.2. In the range of income up to Rs. 5 lakhs, 2.55 Cr filers paid a total tax of Rs. 1,21,384 crs at an avg of Rs. 47,602 per person;
3.3. In the range of income between Rs. 5 & 10 lakhs, the number of return filers plummeted to just 5.57 lakhs , who paid a total tax of Rs. 38, 314 crs at an avg of Rs. 6.90 L;
3.4. The range of Rs. 10 to 25 L income saw just 2.60 lakh filers who paid a total tax of Rs. 39,004 crs at an avg of Rs. 15 L;
3.5. In the income range of Rs.25L to 1 Cr, 87,026 filers paid a total tax of Rs.39,239 crs at an avg of Rs. 45. 10L;
3.6. The income range of Rs. one Cr to Rs. 50 crs saw JUST 16 FILERS who paid a total tax of Rs. 975 crs at an avg of Rs. 60.90 crs;
3.7. And finally, in the income range of above Rs. 100 crs, THERE WERE ONLY 4 FILERS who paid a total tax of Rs. 665 crs at an avg of Rs. 166.30 crs.

4. This data brings out the following facts:–

4.1. As many as 29.48% of the total filers of 6.85 crs DID NOT PAY ANY TAXES AT ALL!
4.2. The 6.85 crs of individual Rtn filers paid a total tax of Rs. 2.73lakh crs only ,with 2.02 Cr filers not paying any tax at all!

5. Out of 8.60 lakh doctors, LESS THAN HALF OF THEM ONLY PAY any income tax;

5.1. of the CAs who” help” us ” plan” our tax outgo, ONLY IN ONE IN 3 PAID income tax.

6. THE INDIA INC STORY

6.1. Total Rtn filers- 7. 69L
6.2. Out of these,–

6.2.1. 3. 9L ( 51%) PAID ZERO TAX;
6.2.2. In the range of income up to Rs. 5 lakhs, 2.90 L filers ( 38%) paid a total tax of Rs. 2825 crs at an avg of Rs. 97,149;
6.2.3. In the income range of Rs. 5 to 10 L, there were only 34,842 companies, who paid a total tax of Rs. 2485 crs at an avg of Rs. 7.10 L;
6.2.4. The income range of Rs. 10 to 25 L saw 34264 filers who paid a total tax of Rs. 5449 crs at an avg of Rs. 15.9 L;
6.2.5. The range Rs. 25 L to Rs. 1 Cr saw 28609 filers paying a total tax of Rs. 14215 crs at an avg of Rs. 49. 7L;
6.2.6. In the income range of Rs. 1 Cr to 50 cr, 18782 companies paid a total tax of Rs. 1,02,529 crs at an avg of Rs. 5.5 crs;
6.2.7. In the income range of Rs. 50 to 100 crs, the number of filers shrank to a mere 412 filers who paid a total tax of Rs. 28,669 crs at an avg of Rs. 69.6 crs;
6.2.8. Finally, in the income range of above Rs. 100 crs, 466 companies filed rtns and paid a total tax of Rs. 2,39549 crs at a high avg of Rs. 514.1 crs.

7. Thus a total of 7.9 L corporate income tax rtn filers paid a total tax of Rs. 6,25, 000 crs, at an avg of some Rs. 81000/.

8. LET US PUT THINGS IN PERSPECTIVE

8.1. The Indian middle class individuals have been the biggest beneficiaries of the 28 years of liberalisation story!
8.2. The sensitive MODI govt has empowered them exponentially by enabling them to connect with him and the other ministers through their smart phones.
8.3. They have thus become the most vocal articulators of their ” rights” from the govt in the form of endless demands for tax concessions.
8.4. Today, up to Rs. 5 lakhs, this class of 2.02 crs does not pay any taxes by filing NIL rtns.

8.4.1. Now, compare them with the plight of 32 crs ( 25%) of the SILENT poor who still live below the poverty line, earning less than $1.5 a day; and they all work in the unorganized sectors no social security measures like PF, ESI which are enjoyed by some 8 crs of people ,including those employed by the Central and State Govts .

8.5. This inequality cannot and should not continue.

8.5.1. It is the national duty of the middle class to forgo some minor tax benefits they enjoy now.

8.6. If we take away the rebate of Rs. 12500 under Section 87A which takes away all earning up to Rs. 5 lakhs a year from the tax bracket, these 2 crs of middle class can contribute a huge tax revenue of Rs. 25,000 crs .

9. We can trust the MODI Govt to utilize this sum for the EMPOWERMENT of the poor through skilling them to win employment.

9.1. And you pay just 2.5% of your income up to Rs. 5 lakhs!

10. The India Inc deserves no sympathy at all.

10.1. Even when the tax rate was 30%, because of the hugely flawed philosophy that tax give away would spur growth, the effective tax rate the companies were paying was only some 18 to 20%.
10.2. Even recently, the Centre, instead of reducing the GST rates on automobiles to help companies to sell off piled up inventories, gave an additional depreciation in the hands of the vehicle purchasers which would help only persons with business or professional income to claim this additional depreciation.

11. TAX TO GDP RATIO OF COMPARABLE COUNTRIES.

11.1. We will not make the mistake of comparing the tax/ GDP ratio of advanced ” Capitalist” countries, where this ratio is in the range of 40 to 48% , because, in spite of being capitalist countries, they are civilized enough to provide ,–
(i) high quality free govt education up to grade 12 at least;
(ii) high quality public healthcare systems ( except America);
(iii) high quality care to the old;
(iv) unemployment doles which are much higher than a ” Manager’s ” salary in the organised sector in India.

11.2. So, let us look at the Tax/ GDP ratio of the BRICS Countries:–

11.2.1. Brazil – 34.4%
11.2.2. China- 20.1%
11.2.3. India– 16.8%( Centre+ States)
11.2.4. South Africa- 26.9%
11.2.5. OECD avg-34%

11.3. This brings out the abysmally poor tax compliance by Indians, especially by the Corporate Sector.

11.3.1. The Corporate tax collection as a % of total Direct taxes collection fell from 63% in FY 09 to 56% in FY 18!

11.4. The share of direct taxes in the total tax collection also fell from 55% in FY09 to 52% in FY 18.

12. To put it bluntly,India’ s growth in tax collection is totally out of sync with the growth in its GDP!

12.1. While India’ s GDP grew by 6 times ( 600%) between 1991 to 2017, its tax to GDP ratio stood at 17.82% in FY 2017.
12.2. Contrast this with South Africa , whose GDP just doubled in the same period but ITS TAX /GDP RATIO STOOD AT 27.11% IN FY 17!

13. THE CONCLUSION IS INESCAPABLE!

13.1. In spite of introducing ” self assessment” & payment of income tax voluntarily under Section 140A, for many years now, where the taxman just accepts the return filed by you and grants refunds totaling Rs. 1.50 crs a year, WE HAVE , AS TAX PAYERS BETRAYED THE TRUST PLACED ON US BY THE CENTRE IN ORDER TO MAKE LIFE EASY FOR US!
13.2. That 2.02 crs of individual tax payers , out of 6.85 crs (33%) file NIL Rtns;
13.3. That 3.9 lakhs of corporate Rtn filers , out of 7.69 lakhs ( 50%) file NIL Rtns , bring out the deep rooted malice in our collective psyche of feeling happy in not paying taxes honestly!

14. MASSIVE EVASION

14.1. If only the Centre constitutes a special audit team , I bet, we can collect from the corporate, Rs.100 tax for every Rs.2.50 spent on such audit team , by just detecting bogus cash expense vouchers in no time!
14.2. If MODI limits cash payments of expenditure to
Rs. 10,000/ per day per person, I will make tens of vouchers of Rs. 9999/ every day on expenses like travel, conveyance, small contractors’ payments, sign these myself differently and siphon off the money into my pocket!

15. SOLUTION

15.1. Just ignore the cooked up books of the corporate tax payers ” duly audited”!
15.2. Just increase ” presumptive ” taxation limits under Sections 44 AD, 44ADA, & 44AE by 5 times ( they were fixed long back) and collect taxes as per the quantum prescribed in these Sections from the business men & professionals among the above mentioned 2.50 crs of individual & corporate tax payers and see the direct tax revenues zooming!

16. THE BOTTOM LINE IS THAT THE CENTRE , THIS TIME ELECTED BY THE MASSIVE MANDATE OF NATION LOVERS JUST CANNOT IGNORE ITS RESPONSIBILITY TO THE PEOPLE IN BRINGING TAX TO GDP RATIO TO ITS CORRECT LEVELS WHICH IS INEVITABLE TO ELIMINATE POVERTY AND ACHIEVE THE MUCH FLAUNTED INCLUSIVE GROWTH.

17. As I am writing this, the Centre is gasping to cut expenditures by at least Rs.2 lakh crs in the remaining three months of FY 20 in view of the tax collections shortfalls and thus hope to peg the fiscal deficit at 3.8% of GDP as against the budgetary plan of 3.3%!

17.1. The Centre has already spent 65% of its budgeted total expenditure of Rs. 27.86 lakh crs by the end of November 2019.
17.2. The shortfall in total tax collections ,as of now is estimated at Rs. 2.5 lakh crs which will go up even further as this FY closes.

18. The massive fiscal concessions announced in September 2019, including a dole out of Rs.1.45 lakh crs tax reliefs to India Inc have not STIMULATED INVESTMENT GROWTH BY THE CORPORATE.

18.1. In hind sight, we can vouch confidently that this money WOULD HAVE BEEN SPENT IN A MUCH BETTER WAY BY THE STATESMAN MODI GOVT ON BUILDING QUALITY PUBLIC INFRA , WHICH WOULD HAVE GENERATED MILLIONS OF ADDITIONAL JOBS !

19. CONCLUSION

19.1. Smart intervention action is called for to make the evaders pay their taxes honestly.
19.2. The Inf Tech power must be harnessed to do this while ensuring that the small number honest tax payers are not harrassed.
19.3. Increase many fold the threshold of presumptive taxation ; its a challenge from me– let us see how many of these categories volunteer to DECLARE HIGHER INCOMES & PAY HIGHER TAXES than under this system, WHICH THEY ARE ALLOWED TO DO!

20. Businessmen , if only they have the competence, CAN and ARE making profits in an ethical way without cheating taxes, customers and all the others in the eco system!
21. If they do not have this competence, they should atleast shed their greed and ‘ ambition’ of becoming entrepreneurs through illegal means.
TO CONTINUE

Ramdas Iyer
08.01.2019
Independent Analyst

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