Indias tax base is 3.5 cr, a tiny portion of the 1.2 billion people who inhabit the subcontinent. Therefore the tax to G D P ratio is also small, over 10 %.These figures are an indication to the fact that a large chunk of the population is off the countrys tax net, a fact that should not be allowed to continue long, given the ambitious projects the Government is embarking upon.Look at the other side of the world. In the US 45 % of the population pay taxes.Indiahas one of the lowest tax-to-gross domestic product (GDP) ratios, says a recent paper by the Centre for Budget and Governance Accountability. Even lower middle-income countries had tax-GDP ratios of 17.7 per cent, the paper said.

Among G20 countries, India had the third-lowest tax base, before Mexico and Indonesia, the paper said. The 37.7 per cent share of direct taxes to Indias total taxes was lower and regressive compared to developing countries such as South Africa (57.5 per cent), Indonesia (55.85 per cent) and Russia (41.3 per cent). Developed G20 countries had a greater share of taxes as part of total tax revenues, the paper said, adding in the US, this stood at 75.8 per cent.Tax G D P ratio has serious implication. A high tax GDP ratio while it facilitates the Government to optimise the mobilisation of resources, such a ratio would also is an indication to the welfare state .Empirically, the higher the social security measures in a country higher the tax-gdp ratio.Therefore, the higher the tax-GDP ratio, the higher the chances of the state beign a welfare state. Denmark , Belgium etc are fines examples.Fiscal experts have been thinking a way out from the current position in which a minority is in the tax net ie in the net of direct taxes. This need to be checked markedly and quite a few experts have drawn up a road map for it.

H P Ranina Primarily, the Government should be in a position to ensure that all expenditure should be recorded by the Government automatically, using the technology available to it. The level of tax compliance in most advanced countries is very high, almost without loopholes, and this is largely due to the application of technology in the day today administration of tax.Cash transactions, a major feature of the Indian economy is the stumbling block that preclude the possibility of recording all transactions. Experts suggest ways and means to overcome the problem.First, the Government should , preferably within a time frame of five years, should make it mandatory for all transactions to be through the medium of debit/credit cards. In most developed or developing countries, at least 76 % of the transactions are through cards.Most advanced countries have mechanised the tax administration to the maximum extent possible. For example the Internal Revenue Service of the United States, the US counterpart of Indias Income-tax department has the machinery to automatically record every transaction beyond the threshold limit to be recorded automatically in their computer network. This computer network has all the financial details of the tax payer which will be displayed on the screen with the click of a button. While high tax compliance is also seen as an offshoot of high civic sense, it is also understood as the outcome of intense vigil made possible by the application of suitable technology. The technology era of India , ushered in by Sam Pitroda, Rajiv Gandhis technology minister, over 30 years ago , has banks and financial institutions gearing up for a fully automated transactions. Once debit card/credit card are made mandatory by legislation in all transactions, the Income tax departments technology network should be aligned to Permanent Account NO (PAN), Unique Idxent5ification Number. Therefore, it becomes obvious that the Government gets the record of all transactions without it asking the tax payer to comply with.Therefore, it is imperative that the Government should make it mandatory for petrol pumps, hotels, restaurants, bars, clubs, to transact only through debit card/credit cards.And airline tickets, purchase of jewellery, gold ornaments, furniture, house hold appliances, motor bikes, scooters,.Dealers of vehicles should be asked to accept account payee cheques or cards. Architects, interior decorators, painters, electricians and others who charge more than Rs 10,000 per transaction should also be required to receive payments for the goods and services through debit cards credit cards or account payee cheques. More the transactions are accounted for more the chances of widening the tax net.

Another important step Government should contemplate is to restrict the number of bank accounts one should own. Accounts opened in different banks and different cities, sometimes with bogus addresses are also used to escape the tax net. Tax evaded income is patked in these accounts . While some obtain bogus PAN to open thee accounts with banks, mutual funds etc.

Therefore it should be made andatory to disclose all their personal accounts.Legislate to use PAN even on accounts that existed in the past. PAN should be aligned with the UID. A positive outcome of upgraded technology for tax administration is that the internacvtion between the tax payer and the tax officer become minmal, which is the beginning of a road to a less corrupt Governemnt department.Tax base also may erode if the tax regime does n ot keep pa e with the changes in the cross border tax developments . It may facilitate thee MNCs shift profit and result into double non-taxation, a a by which the tax payer end up paying taxes nowhere in the world. OECD research titled Addressing Base Erosion And Profit Shifting point out increasingly aggressive tax planning strategies of multi- national companies are the basis of this erosion.Domestic rules for international taxation and internationally agreed standards may not have kept changes in global business practices in the area of intangibles and development of digital economy.

Top of FormBottom of FormSubscribe:Email|FeedNumber of income tax payers in India and USbyMANSHUonJANUARY 19, 2011inECONOMYBusiness Standard has an article today about howsalaried individualsmaybe spared from filing tax returns.It says that the Income Tax department is contemplating a proposal to make filing taxes exempt for salaried taxpayers who dont have any other source of income.So, a salaried individual will of course pay taxes, but wont have to go through the hassles of filing tax returns. The story goes on to say that banks and employers have the details of salaried people who dont have any other income, so in the future it might be possible to eliminate the need of having the individuals file tax returns, and get this information from other sources.This will obviously mean a lot less hassle for a lot of folks, and I hope this idea sees the light of day in our lifetime.What really caught my eye though was the number of people paying income tax in India. The story has this number at 35 million, which is about 3% of our population, and is quite low.Please note that this is not the total number of taxpayers because you pay indirect taxes on almost everything you use, so in that sense taxpayers will be quite high.Still, 3% is a very low number, and I thought Id compare this with the number of people who pay personal income tax in the US.Here is how that chart looks like.

In the US, about 45% of the population pays taxes, as the total population is about 307 million, and thenumber of returns filed for individual income tax is about 144 million.Thats a huge difference between India and the US, and Id think an indication of where India is headed in the years to come as more people join the organized labor force, and more electronic transactions bring in greater transparency.