New Delhi: Indian Prime Minister Narendra Modi has called on the country’s tax collectors to double the number of people who pay income taxes to 100m to raise more revenues for the country’s development.
Only 4 per cent of India’s approximately 1.3bn people pay income tax, far below the 23 per cent that the country’s last economic survey argued would be the “desirable” level.
But Mr Modi said tax officials needed to find ways to bring more Indians under the net, urging them to act as “mentors” to help people understand their obligations.
“There should be respect for the law among all citizens and even fear of the long arm of the law for those who evade taxes,” the prime minister told tax officials at a conference late on Thursday.
In pointed comments on the culture of tax evasion, Mr Modi noted that a Google search of “how to pay taxes in India” throws up 70m responses, while a search of “how not to pay taxes in India’ yields more than 120m.
India’s ratio of tax to gross domestic product is about 16.6 per cent, up from about 6 per cent in the years after the country’s independence from British colonial rule.
But it remains far below collection levels in advanced economies, and is also the lowest compared with other big emerging economies such as China and Brazil. This limits government spending on public services — including health, education, infrastructure and security services — that are necessary to support the country’s development agenda.
Among those believed to severely evade taxes are millions of India’s small-business owners, whose dealings are largely carried out in cash. Property transactions are also highly opaque and undertaxed.
Farmers are exempted from income taxes on their agricultural earnings, although some economists have argued that India’s many large, prosperous farmers should have their earnings brought under the tax net.
Indian police carry a colleague injured during clashes with members of a sect said to have been living illegally at the Jawahar Bagh park in Mathura on June 2, 2016. Clashes between Indian police and followers of a revolutionary sect have left at least 23 people dead after an operation to evict thousands of people from parkland erupted into violence, officials said June 3.
India has also repeatedly raised the earnings threshold at which people must start paying income taxes, and at a faster pace than underlying income growth.
The annual tax-free allowance stands at Rs250,000 ($3,700), having been just Rs150,000 in 2008-09. The economic survey argues that these rises meant that in 2012-13 there were 16m fewer taxpayers than there would have been without the threshold rises, leaving the state $4.7bn worse off. But tax inspectors argue that widening the tax net will be a challenging task.
Previous campaigns to raise the tax take have revolved around trying to squeeze additional revenues out of the relatively few existing taxpayers.
