Six per cent of this country of over a billion people are income tax assesses. That is 60 million people. Of these, 30 million actually pay the tax, that is three per cent of the world's largest democracy pays taxes. Out of this, two out of three people don't have a choice because their salaries get deducted at source.
India's income tax payments are at an all time high and the country is experiencing what analysts call a bonanza of tax payments. From just 1.8 per cent of the GDP in the late 70s, tax collection today stands at Rs 3 lakh crore or seven per cent of the GDP. Indians are paying their taxes like never before and this time around, the I-T department expects three crore people to file their returns – a jump of 10 per cent from last year.
The question that was being debated on Face The Nation was - Are Indians coming to terms with paying income tax?
On the panel to discuss the issue were social activist Alyque Padamsee; tax consultant Subhash Lakhotia; and Hon Director, School of Convergence Paranjoy Guha Thakurta.
At the beginning of the discussion, 76 per cent people who voted in on the show said that Indians no longer evaded taxes, while 24 per cent said India had not yet come to terms with paying taxes.
How is it that India is suddenly seeing a rise in the number of people coming forward and paying their income tax? This is a trend that has never been seen before, so why has this happened suddenly? For the first time, direct tax collections are more than indirect tax collections.
Subhash Lakhotia said that these are not people who have come forward on their own. He said they came forward because salaries were good, income was great and so they were being called upon by the Government to pay taxes.
"It's not that one wants to pay income tax at a higher rate, but they are being made to do so because their salaries have gone up," he said.
"The inflation and the present income and the unprecedented growth in the salary structure is responsible for this high turnout for people wanting to pay taxes. This coupled with lower tax rates from the 1970s has brought people forward," he added.
He said it was a much easier process to file taxes now and that the new generation preferred to pay off their taxes and have an easier life.
However, Paranjoy Guha Thakurta was not convinced and said that the numbers told only a part of the truth.
"Six per cent of this country of over a billion people are income tax assesses. That is 60 million people. Of these, 30 million actually pay the tax, that is three per cent of the world's largest democracy pays taxes. Out of this, two out of three people don't have a choice because their salaries get deducted at source," he said.
He concurred with Lakhotia over the fact that it had become easier to pay taxes and that the system was more transparent, but said that it was important to put things in a certain perspective.
Thakurta said that farmers in Punjab who made lakhs cultivating strawberries and gherkins did not pay anything in taxes including the "gentlemen farmers" who had huge houses in big cities.
Subhash Lakhotia agreed saying that the Government should tax rich farmers so that the tax burden on the common man comes down some.
There is a change in our culture and the way we behave these days. It has almost become a prestige issue to say that we pay our taxes.
Alyque Padamsee joined the debate at this point saying that that it was wonderful that so many people were paying taxes. However, he added, "What bothers me is where is the tax money going? Why don't we have accountability? After collection, the Government should announce to the public how it plans to utilise the taxes. Are we paying money for filthy hospitals and unmanned schools?"
He said that the younger generation which is paying taxes should demand to know where the tax money is going.
Thakurta jumped into the debate at this point saying that Mr Padamsee as a concerned citizen had every right to ask where his money was being used and that it does not disappear into that "big black hole called the consolidated fund of India".
"However, the fact of the matter is that if you look at the Budget papers, you will find how much is coming from where. There are tax revenues and there are non tax revenues," he said.
In 1993, the gift tax was abolished and with this it became possible to declare good profits. But with the boom in the stock markets and the IPOs, a company that honestly declared profits could have a higher share value. There was a business incentive to be honest.
Subhash Lakhotia said that all these things are now irrelevant because under the wealth tax law, productive assets are completely exempt from wealth tax and the sky is the limit.
"This means even if I possess shares worth Rs 100 crore, I will not have to pay wealth tax at all. And with this, there is no need to hide your money and you can show your profits in your books. All this is due to the wealth tax regime being easier and exemptions being granted to productive assets one finds no problem in declaring their correct white income," he explained.
"I still feel though that the tax payers would be happy to higher to pay more taxes provided that retirement benefits are available. If the Government assures care in old age, then the revenue will increase manifold. I also feel the Government should stop scruitinising tax returns of existing tax payers and instead catch those who are not paying their income tax. Then the Government can reduce the income tax burden on existing tax payers of the country," he added.
Black Money Factor
More and more Indians were coming out into the open and filing their taxes simply because the process is easier, and beneficial even in some cases. So did this mean that the black money factor in the economy is lessening?
Subhash Lakhotia agreed saying that the component of black money had indeed decreased.
"I presonally feel that 90 per cent transactions these days are done under white money, especially residential transactions, because with black money, there was no chance of getting a loan," he said.
Thakurta disagreed saying that it was all about numbers. "Our tax paying population is much less than in those of capitalist countries. It is one-third of US' and half of Scandanavia's. We are a long way off from getting everyone to pay tax."
Lakhotia shot back saying that stamp duty rates have gone down and that was the reason for more turnout as well as more transactions in white money.
Alyque Padamsee stepped in at this point and said, "We have to understand that 50 per cent of the population of India is under the age of 25. As these people come into the work place and start to pay taxes, they have a differnt attitude to work to what their fathers had. He said that the only reason these people would keep black money would be because they have no idea where their money goes once it reaches the Government."
He said we needed to start a tax-payers' union which could go on strike whenever it felt that the Government was misusing tax money.
Subhash Lakhotia agreed with Padamsee. He went on to add that for the first time in 50 years, tax rates were reduced in India and this will help the revenue go up.
Final SMS Poll - Last date of filing I-T: Are Indians coming to terms with paying income tax?
Yes: 75 per cent
No: 25 per cent