Prime Minister Modi is a restless man. A few months ago he promised doubling of rural income by 2022. It was on the budget eve and it was a clear ploy directed at the rural folks to allow him a second shot at governance, come 2019. But as things stand, it would not be an easy task given India’s dependence on monsoon and lack of irrigation in as much as two-thirds of arable land unless food processing industries come up in a big way contiguous to rural areas. Food processing industries can be counted upon to double rural income besides going a long way in doubling the taxpayer base.
On 16 June 2016 he was struck by another doubling urge, as it were. While addressing the officers of the income tax department, he said he would like to see the number of taxpayers doubled to 10 crore. This however seems to be doable even in the medium term but is premised on two factors-- -- greater employment and self-employment opportunities being created and tax evaders being smoked out of the comfortable cocoons.
Greater employment opportunities would indeed translate into a larger number of tax payers emanating both out of business and salaried income. It is growth, stupid. Growth is a force multiplier that ultimately leads to greater tax collections from greater number of people. That is why 'Make in India' has to move and transform from the drawing board and catchy theme to reality. It has to be done on a war footing especially in the defence sector where the government is itching to come out of the grips of the corruption and foreign exchange depleting imports.
Businessmen and professionals are still eluding the tax net with impunity despite the 8% presumptive tax scheme on turnover upto Rs 2 crore registering a modicum of success. E-assessment has to a great extent removed the taxman phobia on the part of the taxpayers. This aspect must be sufficiently publicised so as to remove the fear of harassment harbored by wannabe taxpayers, a fact alluded to by the PM in his address to the tax officials. E-assessment of e-returns refers to assessment by computer software that is designed to flag abnormalities.
To wit, if the tax department considers that on professional receipts, 30% expenditure is fair, the system would flag off if 35% expenditure has been claimed. E-assessment eliminates human-human interface and replaces it with human-computer interface that is conducive to elimination of harassment and its concomitant, the corrosive corruption.
If the first BJP Prime Minister, Vajpayee, was fond of alliteration, Modi is fond of acronyms. He coined one when addressing the tax officials-- - RAPID. He said revenue, accountability, probity, information and digitalization should be the five pillars of the tax administration. One wishes he had ascribed ‘intelligence’ to the letter ‘I” in the acronym RAPID because use of intelligence can rope in a lot of taxpayers like it's being done by the extant Annual Information Report from registrars of properties, mutual funds, banks etc.
Indeed intelligence gathering is key to foiling both terrorist attacks as well as tax evasion. For example, the tax administration should tie up with the local administration and access its property tax records to see if the names borne on property tax records are also borne on the income tax records. And if so, whether they are payable income tax in addition to property tax. And if not why not. A beginning can be made with posh localities.
Tax deduction at source (TDS) is responsible for the phenomenon of no tax evasion from salary income. There is no reason why TDS pincer should not reach out to more and more payments like payments to suppliers of goods and services. A contractor is subject to 1% TDS. Why not a supplier of goods and services? TDS puts the fear of God on those who have been subjected to it-- - they have come under the notice of the taxman. They better behave.