Tax administration, heal thyself

Feb 08 2013, 11:41 IST
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SummaryIncreasing compliance by just 3 percentage points among the middle classes will yield double the tax that a 3 ppt rich surcharge will

3 percentage points, from 10 per cent to 13 per cent among this middle income group of Rs 5 to Rs 10 lakh, the extra revenue gained would be Rs 5,250 crore or double that gained from putting a 3 per cent surcharge on the super-rich.

These simple calculations yield at least three recommendations. First, it should be mandatory for the finance ministry to release data on tax compliance by income groups — a practice common in most economies in the world. Surely, no one can oppose the release of this statistic, so why isn’t it being practised? Possibly because it will cast a very black shadow on the workings of the tax administration in India? Second, the biggest revenue gainer is via an increase in compliance, especially for the middle income group. Third, stop thinking of populist measures like surcharges on the super rich, or copy French measures like increasing tax rates for anybody. If any such measures are introduced in the budget, it would not be a “responsible” budget as the finance minister has promised — and not responsible by a long shot.

The writer is chairman of Oxus Investments, an emerging market advisory firm, and a senior advisor to Blufin, a leading financial information company

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