Income Tax Data Reveals Very Few People Pay Income Tax. Here’s Jayant Sinha’s Take On The Matter.

On 29 April, the Union government finally published the income tax data and put it up online. You can access it here.

“(I) Am sure this data will be used by researchers & analysts & lead to enhanced insights for policy making on taxation,” Prime Minister tweeted informing the government’s decision to release the data.

While the data is revealing, there are hardly any surprises in it. According to this Economic Times report, the number of effective assesses has increased to 5.17 crore in the fiscal year 2015. But only 1.3 crore individuals actually paid the income tax. While the rest did file income tax returns but they had zero tax liability.

So, why does the fact that so few individuals pay income tax matter? This Livemint report lists two reasons.

First: the middle class does not seem to care about the practical issue of where the money for lavish social security programmes and national security will come from.

Second: Because so few are paying direct taxes, there is a great deal of dependence on indirect taxes. These indirect taxes are usually considered regressive because they put a higher burden on the poor.

So, what’s the government’s view on this? Recently, in a chat with influential twitteratti, Union Minister of State for Finance, Jayant Sinha, while replying to a question on government’s efforts to expand the tax base, made two key observations:

First, he said that it’s a fallacy and an urban myth that only three per cent Indians pay Income tax. He explained that out of 25 crore households, if we assume 60% are getting only agriculture income, that leaves 15 crore households automatically out of the tax ambit. Out of the remaining 10 crore households, the fact that we have 4 crore (5.17 crore this fiscal) assesses, proves that we are getting the vast majority of people into the tax net.

He said the number of people filing tax return is going up by 15-20% every year and the government is very vigilant and by using various methods it’s identifying new taxpayers and including them in the tax net.

Second, the share of indirect taxes, which are considered regressive, is 50% and everybody pays indirect taxes, the minister said. So, the notion that middle class is carrying an unfair share of the tax burden is not supported by evidence.

Below is the question put to the minister during the conversation.

Q. One of the underlying sentiments that has become very strong recently is that the taxation measures of the government seem to be about sharpening its focus on well-to-do rich taxpayers instead of focusing on expanding the tax base.

So, what is the political logic or the overwhelming rationale behind focusing on existing taxpayers and not trying to enhance the base by identifying newer tax constituencies?

Here’s the full answer given by Jayant Sinha: