A mint article by Vivek Kaul gives a different angle to view our tax system. Quoting from the article “You see, in this world, there are two kinds of people, my friend: those who should pay income tax and they do, and those who should pay income tax and they don’t, at least not their fair share.”
Interesting graphs:
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- The number of income taxpayers who paid a tax of less than Rs 5 lakh has increased over the years. It has gone up from 3.24 crore in assessment year (AY) 2015-16, peaked at 4.99 crores in AY 2019-20 (A year before the pandemic) and has since fallen to 4.12 crore in AY 2021-22.
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- The number of mid-layer income taxpayers increased from 53 lakhs to 1.41 crore for the period under consideration. This is an increase of around 17.6% per year on average.
- The individuals at the top of the Rs 0-5 lakh category may have possibly jumped to the Rs 5-10 lakh category. This can be one reason why the total number of taxpayers in the Rs 0-5 lakh category has fallen, implying that enough newer taxpayers haven’t been entering the Rs 0-5 lakh category because if they had been, then they would have managed to replace those jumping to the Rs 5-10 lakh category.
- In fact, in AY2015-16, those in the Rs 0-5 lakh category formed around 81% of the taxpayers. It was at 76% in AY2019-20 and fell to 65% in AY2021-22, showing the dramatic negative impact of the covid-pandemic on this category.
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- The number of top-layer income taxpayers increased from 22.55 lakhs to 81.03 lakhs for the period under consideration. Growth at the rate of 23.8% a year on average.
Some conclusions:
- The idea of ‘more’ tax on the rich will typically end up as ‘more’ tax to the salaried, as the Indian income tax system is built to benefit the non-salaried rich.
- In a tweet in February 2020, the Income Tax Department said that only around 1.46 crore individual taxpayers were liable to pay income tax.
- So, clearly, many non-salaried rich, who can deal in cash, aren’t paying their fair share of income tax.
- One way of earning a larger amount of income tax without raising rates or getting the same segment of taxpayers to pay more is to start taxing agricultural income over a certain amount (let’s say Rs 10 lakh). Of course, this is a political hot potato.
- The big worrying thing is that the number of individual taxpayers entering the category of Rs 0-5 lakh has fallen over the years. This is clearly because of the K-shaped economic impact of the covid-pandemic.
- A funnel can only get wider in the middle and at the top if it gets wider at the bottom first. And that hasn’t been happening in India. That’s the ugly bit. As always, fortune is at the bottom of the pyramid.