Mitali Nikore: At this point, we have to question the measures around the progressiveness of our taxation. At the end of the day, when we look at the growing inequality in the Indian economy, we are aware that the income of the top first decile, the top fifth decile, and the top tenth decile are growing much faster than the incomes of the bottom 50% or even the bottom 70%.
So, when they are talking about the tax base, we have to take the personal I-T tax base to the 30th percentile. We are not even there yet. We are still in the tenth percentile when it comes to taxation. Only the top 10% of income earners in this country are paying any tax. So, firstly, we have to have more and more progressive taxation.
But then what about the revenue? What is the collection from the lowest taxpayers versus the cost of collecting it? In some cases, in the Rs 3 lakh to 7 lakh annual income bracket, the cost of collecting tax from that bracket is very high with marginal return. The amount of average tax that each taxpayer is paying is quite low. So, if you give up that tax and start taxing only after Rs 7 lakh or even after Rs 10 lakh, the collections would still be quite hefty and the cost of collections quite low. Plus, you would increase the money in hand for the consumption of this person who is earning less than Rs 10 lakh a year and thereby buoy up your indirect tax collections.
As an economist, I would say that the best way of making our tax collections more progressive and more widespread is through the GST route as opposed to just the personal income tax collection route. There are big groups around taxation where the rate can be increased and which are currently exempted from taxation. Like the rich farmers. Why do we have this category that is exempted from taxation? Maybe a study is needed to see if there is any possibility of taxation and also to look at corporate taxation in another way to expand that pool.
If you compare the percentage of voters in developed countries who pay taxes versus those in India, that difference is quite stark. In the US, more than 50% of voters pay taxes. In Germany and the UK, around 60% pay taxes, and in France, it is more than 78%. In India, less than 3% of voters pay taxes. How much do you think GST has helped to expand the net and are we moving in the right direction, at least on the GST front?
Mitali Nikore: When we look at the reasons for this, why is it that such a large proportion of voters do not pay taxes in India, it is also a structural issue.
Lot of people in our labour markets, around 70% of women and almost 50% of men are identifying as self-employed as per the latest data from the periodic labour force participation survey. Now, of course, this self-employment does not mean that they are entrepreneurs. It could also mean that they are solopreneurs or they are working as gig workers and, again, according to the Economic Survey, there are nearly 1.3 crore gig workers in the economy already. All of these categories fall out of the ambit of the personal income tax in many cases because they do not meet the threshold. They are still earning less than Rs 3 lakh annually and sometimes less than Rs 7 lakh and only a small amount comes in there. They are only supposed to pay 5% and on that also, they get some exemptions. So, a large proportion of our labour market being self-employed leads to a situation where they do not have to pay tax, that is the first reason.
Second, GST is the only tool that one can expand the tax net when we are not able to collect direct taxes. But honestly, at this time there is also a need to look at the corporate taxes and the taxes on small businesses and startups because startups get a lot of exemptions and some support which they should as should MSMEs. But we also have to start thinking about increasing corporate taxes.