If India’s income tax payers were to secede, the population of their new country would be smaller than that of South Sudan. In a nation of more than 125 crore people, hardly 1.25 crore people, or 1% of the population, paid any taxes on their income, according to the latest data available. The bulk of citizens who are liable to pay direct taxes are evading them.
This year's budget documents reveal just how big this hole is. Over the last ten years, the government failed to recover Rs 3 lakh crore in direct taxes. The bulk of that amount (65%) has been pending for two to five years now.
The data released by the government on trends in payment of direct tax over the years makes it clear that tax collection has almost never kept up with the government’s projections. This is because a large number of people don’t pay up even though the government has evaluated their incomes and levied tax on it. This tax revenue is often considered foregone. But the government still continues to carry it in its budget documents as revenue that is yet to be recovered.
However, the hopes of recovery are bleak as much of it is tied up in disputes. More than 92% of direct taxes on income that has been raised by tax authorities in the past 10 years, but not received is tied up in various disputes.
This is just the unreceived income tax.
If one includes unpaid tax by companies, businessmen and shopkeepers, the amount of taxes similarly tied up goes up to Rs 7 lakh crore.
In 2011, when the Congress-led United Progressive Alliance was in power, the government did not receive Rs 50,000 crore in taxes – and this was a dispute-free amount. A standing committee on finance brought this to the notice of the finance ministry, which assured the committee that it was making efforts to recover the dues but couldn’t quite succeed.
While the current government led by Prime Minister Narendra Modi was swept to power on the back of its promises to curb black money, efforts to recover this illicit money are yet to show actual gains.
The direct tax collections for 2015-’16 were lower than the projected figures in the revised estimates even as indirect tax collections boosted the total tax revenue for the year.
This doesn’t bode well for the economy. Indirect taxes are usually levied by the government to make up for its shortfall in direct tax revenue. But the problem with indirect taxes, such as those levied on products and services, is that they are regressive in nature, implying that the rich pay at the same rate as their less-privileged counterparts.
Even there, the government has just unearthed a massive evasion. On Tuesday, in a statement, the government said that it had uncovered tax evasion worth Rs 50,000 crore of indirect taxes, and undisclosed income of Rs 21,000 crore since 2014.