Economic Survey calls for widening tax net

Laying out the fiscal capacity roadmap for the 21st century, the Survey calls for widening of the individual tax payers base. Despite the number of tax returns filed picking up from mid-1980 onwards, nearly 85 per cent of the economy remained outside the tax net. It also calls for reasonable taxation of the better-off individuals and pruning of subsidies to rich farmers

New Delhi: Will Union Finance Minister Arun Jaitley be focusing on strengthening of the social infrastructure facilities in the country with both public investments and by way of leveraging private investments? Is widening the tax net to bring in more tax payers under some form of direct tax paying or the other on the cards? Will there be higher property taxation? That is the way forward if one were to go by the Economic Survey of this year presented to the Parliament on Friday.

While pointing out the need to focus on the quality of education in both the public and the private sectors, the Survey says that there is a need for professionally qualified and trained teachers to improve educational outcomes. The Economic Survey 2015-16 states that the social infrastructure scenario in the country reflects gaps in access to education, health and housing amenities.

Inclusive growth in India requires bridging gaps in educational outcomes and improved health attainments across the population, it reiterates. Referring to the capitalising the ‘demographic dividend,’ the Survey stated that increasing investment in human capital is a key requirement to improve productivity of the population.

It also adds that that the total expenditure on social services including education, health, social security, nutrition, welfare of SC/ST/OBC etc. during 2014-15 was 7% of GDP while it was 6.5% during 2013-14. On the education front, declining educational outcomes reflected in lower reading levels in both public and private sector schools are areas of concern.

According to Annual Status of Education Report (ASER) 2014, there is sharp decline between 2007 to 2014 in the number of children in Standard V who can read a textbook of Standard II, in both government and private schools. The Economic Survey states that the Gender Parity Index (2013-14 Provisional) however, showed an improvement in girls education, with parity having been achieved between girls and boys at almost all levels of education.

It pats the government for the steps to provide education to underprivileged, vulnerable and marginalized people such as SCs, STs, Other Backward Classes (OBC) including Minorities and other Economically Backward Classes through various programmes of education. On the job front, it states that India’s most pressing labour market challenge will be to generate a large number of good jobs.

These jobs tend to be formal sector jobs. Two obstacles to formal sector job creation are regulation-induced taxes on formal workers and spatial mismatch between workers and jobs. Encouragingly, firms and workers are finding solution to deal with these obstacles that are even more varied than the obstacles themselves, it says, while admitting that meeting the challenge ahead will require more of such ingenuity, and the private sector, state governments and the Centre will all have important roles to play.

The Economic Survey terms the proposed Goods and Services Tax (GST) as a reforms measure perhaps unprecedented in the modern global tax history. The GST, to be implemented by the Centre, 28 States and 7 Union Territories, awaits a Constitutional amendment requiring broad political consensus. Estimated to affect between 2 to 2.5 million excise and service tax payers, the survey says the GST would impact dramatic changes in the Indian tax system.

Laying out the fiscal capacity roadmap for the 21st century, the Survey calls for widening of the individual tax payers base. Despite the number of tax returns filed picking up from mid-1980 onwards, nearly 85 per cent of the economy remained outside the tax net. Pointing out that just 5.5 per cent of earning individuals are in the tax net, translating to a ratio of about 4 per cent of tax payers to voters, the Survey says this ratio should be raised to a desirable estimate of about 23 per cent.

It says that tax-paying and political participation are the two important accountability mechanisms wielded by citizens. As a steps towards building fiscal capacity, the Survey suggests that the easiest way to widen the tax base would be not to raise exemption thresholds. Making a study of the data since Independence, the document points out that the exemption thresholds have been raised much more rapidly than underlying income growth resulting in a widening of the wedge between average income and threshold limit.

Bringing more and more people into the tax net via some form of direct taxation will help in realising the promise of Indian democracy, it notes. The Economic Survey also calls for a review and phasing out of the tax exemption Raj that benefited the richer private sector. It recalls the promise to bring down corporate taxes from 30 per cent to 25 per cent while proposing the phasing out of exemptions in an orderly manner.

It also calls for reasonable taxation of the better-off individuals regardless of where their income comes from industry, services, real estate or agriculture. The Survey identifies property taxation as an area calling for urgent attention. Higher property tax rates with periodic updation will improve local government finances, discourage speculation in real estate sector and pave the way for Smart Cities, it noted. Another alternative to fiscal consolidation would be to reduce subsidies to the well-off farmers amounting to about Rs 1 lakh crore by better targeting subsides to the poor.