India is far from being a full tax-paying democracy with about 5.5 per cent of the people who earn paying tax and only 15.5 per cent of the net national income being reported to the tax authorities, according to the Economic Survey tabled in the Parliament on Friday.
The survey estimated that just four per cent India’s voters are taxpayers, though it should be closer to 23 per cent, and 85 per cent of the net national income fall outside the tax net.
The tax to GDP ratio at 16.6%, as a result, is well below that of the emerging market economies of 21 per cent and OECD average of 34 per cent. The survey, however, pointed out that the democracies with higher ratios took a long time to strengthen tax capacity. “Any harsh judgement of India’s performance must be tempered by historical differences in the evolution of India compared with other democracies.”
On the expenditure side, India’s spending on human capital, education and health, to the GDP ratio is the lowest among BRICS and lower than the OECD and emerging market economies averages. They are in fact, lower than those of comparable per-capita GDP economies such as Vietnam, Bolivia and Uzbekistan.
To widen the tax net and raise revenue for spending on India’s human capital development, the survey called for bringing rich farmers into the tax net, raising property tax rates and phasing out tax exemptions.
There should be “reasonable” taxation of the better-off, regardless of the source of their incomes, whether it is from industry, services, real estate, or agriculture, Chief Economic Advisor Arvind Subramanian told reporters after the survey was tabled.
The survey also seeks to address the question French economist and author of best-selling book Capital in the Twenty-First Century Thomas Piketty raised during his recent trip to India: Should not Indian elite pay more taxes to provide for greater spending on health and education?
If the UPA Government had not raised in the 2012-13 the threshold level of personal income tax, the survey calculated that an additional 1.65 crore income tax payers would have got incorporated.
The tax-GDP ratio would have been 0.32% higher as Rs.31,500 crore additional tax revenue would have been collected.
The survey also seeks to analyse the levels of inequality in India, which Prof. Piketty said during his visit, he is unable to assess owing to unavailability of data.
According to the survey fast growing years in the 2000s were in fact associated with rising inequality at the very top end of the Indian income distribution.
As in many countries, there has been a growing concentration of income at the top: in 2013-14.
The top one per cent, 0.5 per cent and 0.1 per cent of people in the overall income distribution (the three highest income groups) accounted for 12.4 per cent, 9.4 per cent and five per cent of the entire income of the Indian economy.
At these levels, inequality in India, it said, is comparable to that in the U.K. and lesser than in the United States.
