Collection of professional tax, a minor tax in the State’s kitty, has grown by more than 14% in the past three years — something that, according to officials, indirectly indicates the employment scenario.
Finance and Labour department officials believe that despite hiccups in the economy in the past three years after demonetisation and the introduction of Goods and Services Tax (GST), professional tax collection has continued to increase.
This, they say, indicates an addition of jobs as well as an increase in salaries. Trade unionists, however, contest the theory that it is an indicator of job generation.
The professional tax collection (figure does not include government officials whose tax is paid directly to the Treasury), which was around ₹840 crore in 2015-16, went up to ₹964 crore in 2017-18 — growing by over 14%. The growth rate is expected to increase further with collection expected to touch ₹1,100 crore in 2018-19.
An analysis of the data on professional tax collection in the State during the past decade shows that barring in 2015-16, when the slabs were revised, tax collection has been growing.
A maximum of ₹2,500 a year is levied as professional tax on establishments and persons earning more than ₹15,000 a month. Professional tax is among the only two taxes (the other being Karnataka Sales Tax) that the State government administers, after the other taxes were subsumed in the GST regime. “Collection has also gone up because of the department’s efforts to expand the tax base,” an official said.
In terms of enrolled professionals, such as doctors, chartered accountants, artists and tax consultants, and registered GST dealers, the number went up from 6.05 lakh in 2014-15 to 7.24 lakh in 2017-18 — a growth of over 19%. During the same period, the number of registered companies (in most cases collecting professional tax as TDS from employees earning over ₹15,000 a month and remitting it to the government) has gone up from 65,900 to 77,800 — a growth of 18%.
However, the growth rate in collection of professional tax is still lower than what was witnessed in the years between 2010-11 and 2014-15. Officials say it has dropped since 2015-16 after the State government revised the slabs for Karnataka professional tax from a minimum of ₹10,000 a month to ₹15,000. The result was that in 2015-16, collection saw a negative growth of 3.24% in comparison to the previous year, declining from ₹868.62 crore to ₹840.51 crore.
Job creation?
A senior Labour Department official said the data could reflect the formal or organised sector job scenario. “While there could be new jobs added, there could also be those whose salaries have moved beyond ₹15,000,” he said, adding that moving into tax-paying bracket may not be quick in small- and medium-scale industries.
However, trade union activists believe the increase in tax collection is not an indicator of addition of jobs. “The collection may have gone up owing to improved compliance by professionals or people moving beyond the ₹15,000 threshold, both of which may have increased tax collection,” said Muralidhar, a labour lawyer.
“A similar rise in the number of subscribers in Provident Fund would not mean creation of new jobs. It could be a factory with 19 employees getting into the PF fold with the addition of one more employee. The net new jobs added will just be one, but on the record 20 new workers would have become PF subscribers,” he said.
Google comes in handy
Google has come in handy for officials to identify professionals who have not registered themselves. An official said the search engine has been used to identify service professionals such as doctors, share brokers, tax practitioners and chartered accountants, among others, in Karnataka, especially Bengaluru.
“About 4,000 notices go from the department every week. Sourcing the list of vehicle owners from the Transport Department, we have sent 3.5 lakh notices to professionals,” the official said. More than 100 associations have been informed about the need for its members to comply with the law.
Minimum Wages Act, an escape route?
There has been high incidence of under-reporting of wages to escape from the professional tax net, and the cash component being added to the salary fixed as per the Minimum Wages Act has been noticed. “To adhere to the Minimum Wages Act, we have seen many industries fixing salary according to the Act.
If the wage exceeds ₹15,000, the excess is given in cash, thereby avoiding registration for professional tax,” an official said. Since cash is used in a big way in the hospitality industry, small- and medium-scale industries, and the security and transportation section, which provides employment to more than a million people, coverage is low here.
