Every Economy is built with great aspirations and character to nurture its present and future Generations with ample growth and sustainability. It enshrines the beliefs and ideals of great leaders and brings alive the very notion they lived and died for – The Magnificent India. Indian economy has seen numerous up’s and down’s post Independence. Over the years of evolution , healthy relationship between Fiscal and Monetary policy spurred growth and sustenance respectively.
Every year, economic survey released by Finance department summarizes parameters related to Growth and sustenance levels . Multiple parameters including performance ratios, sector – wise growth, Correlation factors relating to development indices, country specific Revenue – to – GDP Ratios, Fiscal Deficit, World Bank Loans, Special Economic statuses, subsidies are discussed and debated . While many of these are important , Tax(Revenue) to GDP is considered simple to calculate and holds direct implication on effective administration & governance of any country. In case of India , this ratio is 16.6% for 2015-16 which is “POOR” compared to OECD (Organization for Economic cooperation and development ) standard of 30 . India also stands lowest in BRICS while Brazil leads at 35.6% .
Indian tax earnings are not growing at a required pace along with GDP. This has become a huge problem and stifled growth in a country with the highest Demographic Dividend. Tax earnings are single major source of revenues followed by capital receipts and interests. Fin. Ministry is serious about this and recent budget focuses on bringing more players in Tax payers ambit . The proposal looks simple but infrastructural and technical challenges are looming in its implementation.But once completed, there will be quick results. Some problems are structural which lead to this crisis and seek solution in long term basis like…
1) Low per capita Income: Regulatory Bank opined India would cross Rs. 1 lac ( $1700) GDP per capita mark in FY 2016-17 . It nearly doubled after 7 years ,but not enough when compared with others in BRICS League.Russia ,Brazil and China averages above $8000 GDP per capita where as South africa is just above $5000 mark. More Disappointing is Non-transparency in earned Incomes .According to 2015-16 survey ,Out of 3.7 crore Individual tax payers only 20.5% declared income above 5 lpa.75% individuals in this income range are employed. In the year 2014-15 out of total tax collected 4.46 lac cr as revenue, 25% (1.13 lac cr) is collected from 64 Individuals only.
2) SME’s Non – Declaration : In Total 13.94 Lac firms registered under companies act .Only 2.9 lac firms submitted positive revenues hence filed tax and nearly 2.7 lac firms showed “zero Income” for FY 2015-16. 5.6 crore Individuals are into Small businesses and only 1.8 cr enterprises have filed Tax in FY 2015-16
3) Service Tax : New services are added every year under taxation. But, services industry contribution to total tax is only 5% out of their major proportion of 60% in GDP. Tax exemptions in agriculture for FY 2016-17 clocked 2.31 lac.cr and exemptions in other sectors is depreciating total sector contribution.
Recent steps in curbing corruption & black-money , also Infrastructure setup using Technology is majorly aimed at solving Non- structural problems
1) Demonetization: Bringing more transparency in bank accounts , Incomes and Transactions will repair the economy and benefit all classes. Announcement of currency ban on Nov 8th showed some startling results. Tax Income collected within a month after announcement is nearly equal to collection for whole financial year i.e., around 3-4 lac crore. Another 80k cr in the form of Bad Loan repayments.Stricter norms set on corruption and black-money will provide major boost for growth in the long term
2) Digitalization: Jan- dhan- yojana, Aadhaar , Mobile (JAM) triple point formula for direct subsidy transfer to farmers and beneficiaries is set to address financial deficit appropriately In 2015-16, 9.75 cr in the form of DTS(Direct Tax Subsidy ) is transferred to 100 million bank accounts. Digital platforms for facilitating transactions are set to bring SME’s under Tax purview and boost Tax Income . DTS is a huge implication for offsetting leakages and benefitting farmers and its rightful holders under this sector which draws majorly 2.4 lac crores every year as subsidies.