Govt’s Efforts to Improve Widening of Tax Base

An excellent tax base is crucial for every economy as it generates revenue for them, which is needed to develop a nation. Thus almost every nation in the world is trying to widen its tax base so that more revenue can be generated. In past, it has been observed that countries with a decent tax base is more likely to grow than the one with a poor tax base. In 2021, countries like Japan and Finland collects around 55%-57% of personal income tax from their taxpayers.

As per the Income tax slab and rates, 2021-2022 in India, citizens with an income between INR 2,50,000-5,00,000/Year need to pay 5% of income tax annually. People with a salary of less than INR 2,50,000 don’t need to pay income tax.

What do you mean by widening the Tax Base?

Widening the tax base simply means increasing the volume of tax collection via different methods. Some of the most commonly used methods are decreasing the threshold of taxes for example If, at present, only those people who pay taxes whose income is more than 2.5 lakhs, then the government can reduce the minimum salary required for tax payment to 1 lakh thus making more people pay taxes. Another method adopted by many economies is subjecting more products to taxes or increasing the tax percentage.

Some Initiatives are taken by Govt. to widen the Income Tax Base in India:

The Government of India has been observing a huge evasion in taxes and thus came up with several initiatives to widen the income tax base and reduce tax evasion in India.

• Cross seeding of PAN with Bank Accounts:

The income tax department observed that still there are many bank accounts that are not linked with PAN, thus creating a loophole in the taxation system. Thus the income tax department made it compulsory to link bank accounts with the PAN and further link PAN with Aadhaar. 

• The Finance Act 2020:

This act allowed individual taxpayers as well cooperative payers to pay taxes at concessional rates if they are unable to get any incentive or any specified exemption.

• Use of Computer-aided technology:

The GOI took the help of Computer Assisted Scrutiny Selection (CASS), Non-filers monitoring system (NMS), Income tax business application (ITBA) to find out and take strict action against tax evaders.

• Cutting Income Tax Rates:

The Government of India is trying to cut down income tax rates thus reducing the threshold value of income tax. This step will help the government collect taxes from more people, thus widening the income tax base in India.

• Imposing penalties and filing prosecution:

The GOI is continuously taking strict action against the income tax evader in India and if anyone is found guilty of tax evasion can be prosecuted or can be imposed huge penalties.

Benefits of widening Income Tax Base in India:

Widening the income tax base in India can prove to be quite beneficial in numerous ways:

1. Boosting Economic Growth: A widening income tax base will help the government collect income tax from more people. Thus leading to better economic growth and providing more people a chance to contribute to the economic growth of the nation.
2. Improving infrastructure: If the GOI collects more revenue through income tax then that money can be used to improve the infrastructural facilities, Health care, education, quality of life, and social services. 
3. Will promote equality: If all people are subjected to income tax. divided by the percentage then it will promote quality among the taxpayers. Every citizen of India will pay tax depending upon his/her income.
4. More funds for government initiatives: If a government becomes successful in collecting a significant amount via income tax then, that amount can be utilized by the government for the government initiatives in the public interest.
5. Reduction in tax evasion: It has been observed that many people try to evade tax by showing their false income. Thus if the income tax base widens and every earning person is subjected to income tax then it will significantly result in a reduction in tax evasion.

Drawbacks of widening Income Tax base in India:

1. Widening of the income tax base will subject more people to income tax or will result in increased income tax rates. As per the current economic situation, the per capita income of India in 2021 was nearly Rs. 87,000. Thus, a majority of people in India aren’t financially stable to pay taxes.
2. Increasing tax rates, to widen the income tax base in India can also result in a reduction in the purchasing power of a consumer. Thus directly affecting the total local sales of the nation and the overall growth of GDP.
3. With a 1.3 billion population still, half of the population in India doesn’t have access to the internet. Thus, if government widens the income tax base then people will not only need to pay income tax but also need to pay the mediators to file the tax online. 

Despite the strong efforts of GOI, the current scenario of the income tax base in India is not very well in India. According to the government data during the fiscal year 2019-20, only 8,13,22,223 people in India pay taxes of its population of 1.36 billion. This data reflects that only approximately 1% of people pay income tax in India. However, GOI is making consistent efforts to find out an effective way that would widen the income tax base in India. Without even affecting much on the purchasing power of the local people.