NEW DELHI: Over the last few years the government has made many attempts to broaden the tax base and in some way the government has succeeded in it. Last year, the tax collections improved significantly and the central taxes-to-GDP ratio reached 11.5%, which is one of the highest in over a decade, revenue secretary Tarun Bajaj said in an interaction with TNIE.
He reiterated that there is a need to improve the tax-to-GDP ratio considerably, but also admits that 11.5% (tax-to-GDP ratio) will not jump to 14% in one year. “But we are moving towards that as our GDP grows and per capita income grows, we will see more people paying taxes and our tax-to- GDP ratio would go up,” the revenue secretary said.
Tarun Bajaj, whose tenure as revenue secretary is coming to an end on Wednesday, said that the main reason for fewer people paying (income) taxes is lower per capita income in the country. India’s per capita income is $2,200, which is lower than some of the African countries.
The outgoing revenue secretary said that the new income tax regime needs a relook as it has not been able to attract many taxpayers. “Somebody with an income of Rs 7 lakh in the old regime does not have to pay any taxes, but in this regime you have to pay taxes (even at a lower threshold). Who will come into the new regime on his own,” says the secretary.
He said that 80% of the taxpayers show income of Rs 7 lakh or less. Under the old regime, a person whose annual taxable income is Rs 5 lakh or less would have to pay no taxes, which necessarily means that someone with Rs 7 lakh annual income can go tax free thanks to various deductions allowed. Under the new regime, the threshold is Rs 2.5 lakh and no deductions are allowed.
According to Bajaj, one of the changes in the new tax regime could be increasing the threshold from Rs 2.5 lakh to say Rs 7 lakh. He also feels the need for rationalising the tax slabs. He says that you cannot increase the slab from 5% to 20%. “It has to be more gradual increase, else there would be bunching at 5%,” he said. On the sustainability of high GST collection in recent years, Bajaj expressed his confidence that monthly GST collection trends are sustainable.
New income tax regime needs a relook: Bajaj
Tarun Bajaj, whose tenure as revenue secretary is coming to an end on Wednesday, said said that the new income tax regime needs a relook as it has not been able to attract many taxpayers. He said that the main reason for fewer people paying (income) taxes is lower per capita income in the country.