amount that was collected was Rs 1.72 trillion indicating an overall compliance rate of 33 per cent. So two-thirds of the taxable population avoided paying taxes altogether or paid two-thirds less taxes than they should have.
The dominantly large share of the flow of black money each year is indicated by the gap in tax collected and tax due and for 2011-12 this gap, Rs 3.45 trillion, is about 4 per cent of GDP. For the 10 years 2002-03 to 2011-12, 4 per cent of average GDP is Rs 20 trillion. This suggests that the recent estimates pegging black money at around Rs 25 trillion are in the right ballpark — and that our “missing tax” estimates are broadly correct.
The largest share of missing taxes is among those earning between Rs 5 to Rs 10 lakh a year. They are in the top 7 per cent of the population, they number around 25 million, and only about 10 per cent of such individuals pay any tax. How much missing taxes is in this group, a group for which the average tax rate is only 10 per cent? About equal to the entire tax collected in 2011-12: Rs 150 thousand crore.
About Rs 1 trillion is lost among those earning between Rs 10 and Rs 20 lakh a year. Such individuals are in the top 2 per cent of the population, and only a third of such individuals pay any tax.
The super-rich or those earning more than Rs 20 lakh a year: there were 88 lakh such individuals and 58 lakh paid taxes, yielding a compliance rate of 66 per cent. Missing taxes for this group: Rs 0.46 trillion, or only 13 per cent of the entire amount of PIT missing in India.
If compliance levels stay the same, a surcharge of 3 per cent on super-rich incomes will yield about Rs 2,600 crore. Alternatively, the government could make an effort, with support from its tax administration officials, to reduce corruption, reduce black money, and increase taxation of the top 7 per cent. If compliance in this group was brought to only the average of the economy — that is, 30 per cent — that alone would generate an extra Rs 35,000 crore, that is, five million extra taxpayers, paying an average tax rate of only 10 per cent, on average incomes of Rs 7 lakh. Okay, if tax administration increased compliance by only