As collection soars, govt must focus on widening the tax net
Direct tax revenues rose by an impressive 18 percent in 2023-24. A similar trend has been seen in goods and services tax, whose total collections crossed Rs 20 lakh crore for the first time, posting a 12 percent growth over the previous year. The strong direct tax and GST collections show the government has been able to plug many loopholes in the system that allowed evasion or underpayment. The government should now devise plans to widen the tax net and bring more people under it. The number of income tax payers in the country remains minuscule and this has been seen as a failure of successive governments.
The latest direct tax collection numbers show an encouraging trend in personal income tax, which has grown 25 percent year-on-year compared to a 10.26 percent increase in corporate tax collections. While one could raise a moral question over the slow growth in corporate taxes, the government and the revenue department would be satisfied with their efforts in achieving such high growth in personal income tax collection. In absolute terms, too, personal income tax (Rs 10.44 lakh crore) exceeded corporate tax collections (Rs 9.11 lakh crore) by a fair margin. Personal income taxes usually account for 17-18 percent of total tax collected in India, including by the states. In many developed countries, personal income taxes account for a more substantial chunk of the total—for example, income tax accounts for 41 percent of all taxes collected in the US. While that share may be difficult to attain soon, India should strive for higher collection through both personal income taxes and corporate taxes in the long run.
Technology, including a focus on the digital economy, has helped the tax department keep a close eye on large transactions involving individuals. Apart from that reliance, tax collected at source or TCS and tax deducted at source or TDS have also helped bring a larger number of people under the tax net. The number of individual income taxpayers—9.4 crore in assessment year 2022-23—is still too low. However, the government must not go overboard with its efforts to widen the tax net by unleashing an overzealous regime.