Government's efforts of widening Tax base are not paying off

Widening Tax base are not paying offThe government’s efforts to widen the tax base are not paying off as numbers of new tax payers added over the past three years show a decline.

As reported by The Time of India : New tax payers added over the past three years show a decline, while a staggering 89% of existing assessees are bunched in the lowest income bracket of Rs 5 lakh or less a year.

Numbers point to a worrying trend the government would want to reverse as while 17,84,709 assessees were added in 2008-09, the figure slid to 16,75,069 and 14,82,229 over 2009-10 and 2010-11. While 2008-09 witnessed a slowdown, the next two years were seen as stable.

Official sources said the decline in assessees could in part be explained by changes in basic exemption limits for tax payers, a year of slowdown and a slowing growth trajectory thereafter. But with overall growth still near 7% along with a young workforce, the trend is puzzling.

While figures for new assessees are down, the total number of “effective assessees” for all categories of tax payers like company, individual, Hindu undivided families, firms and trusts for the same period also show uneven growth – 326,50,627 for 2008-09 and 340,85,426 and 337,39,124 for 2009-10 and 2010-11.

In percentage terms, 89% of tax payers are in the Rs 0-5lakh slab, 5.5% in the Rs 5 lakh-10 lakh slab and 1.3% in the above Rs 20 lakh segment.

A drop in new tax payers comes in spite of measures like making quoting of PAN for certain transactions mandatory like sale or purchase of immovable property valued at Rs 5 lakh or more, sale of motor vehicles and hotel payments for amounts exceeding Rs 25,000 at one go.

The government informed Parliament’s standing committee on finance that information collected through reporting of cash deposits aggregating Rs 10 lakh, purchase of property valued at Rs 30 lakh or more and expanding areas of tax deduction at source are intended to bring more people in the tax net.

The Central Board of Direct Taxes has put failure to boost new assessees to provisions “such as grant of additional exemptions, increase in basic exemption.” The Board added assessees have also reduced due to “closure of business, demise of tax payer, retirement”.

What is baffling officials is that measures like withdrawal of excise exemption, imposition of excise duties on readymade garments, service tax on new services and a “negative list” approach has not helped much. Some sources wondered if processes by which statistics are reported needed revision.

Part of the problem was indentified by the finance committee in a recent report that noted: The Rs 0-2 lakh income slab has 2.02 crore tax payers with the number decreasing to 56.73 lakh in the Rs 2 lakh- Rs 4 lakh slab. Tax collected in the Rs 0-10 lakh segment is Rs 21,094 crore, and corresponding figures for Rs 10 lakh -20 lakh are Rs 10,185 crore. In the Rs 20 lakh and above segment, Rs 53,170 crore was collected from only 1.85 lakh tax payers.

“The figures only confirm the view that the tax structure and prevailing tax regime is regressive – both for the individual as well as corporate tax payers…the committee is astonished that 90% comprise of individual tax payers in the Rs 0-5 lakh income slab without commensurate tax yield.”

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