PM Modi is right to push tax collection

Prime Minister Narendra Modi is quite right to try and push the system to ensure that those who can pay tax indeed do so. His exhortation to top officials of our tax apparatus in New Delhi on Thursday to get a bigger bang for the buck — to get more tax collected for the money spent on doing so — is spot on. The treasury can certainly do with more in its kitty if Budget objectives are to be met. The problem, however, is that successive governments have wrestled with the issue, but are not ready to strike decisive blows to reach the goal. In the end, too few people end up paying tax on their earnings and assets.

The data suggests that a mere five crore in a population of some 100 crore do so, or five per cent of the population. This is pitiable for a country that doesn’t tire saying that the Indian middle class approximates 250 or 300 million people. The PM has set a modest target of doubling the numbers in the tax net. Right now the direct taxes collected just about cover the expenditure on sustaining the machinery of around 42,000 officials charged with bringing in that revenue.

Eventually, the burden of income tax falls on the salariat for whom the levy is deducted at source. They make up some 90 per cent of income tax payers. Mr Modi has urged the tax collectors to behave as facilitator and guide, not “invader” — a strong word to use, suggesting that there is a revenue shortfall because the tax authorities are not doing a good enough job. The tax department may use softer methods. They may use sophisticated surveillance which the Internet and computer age makes possible. They may also be persuaded to see the light and eschew corruption, and stop letting off the big fish lightly for a consideration.

We will be better off if the PM’s exhortation had effect. In the end it is clear that more people will have to be dragged into the tax net if our Budget goals are to have serious meaning. The beginning should be made with the rural rich. They enjoy most of the fertiliser and power subsidy and drive around in posh cars like the in some parts of the country, but do not know what income tax returns are. Can the government summon the political will to bring 15 crore rural households into the tax net? If this does not happen, we may continue to plod along with a mere 10 per cent of the Budget being available for capital expenditure. That typically means cutting expenditure on health, education and infrastructure.