% Of People Paying Income Tax In India < 1% ??
Q: % of people paying income tax in India < 1% ?? Can you someone confirm this story? I heard this news came out in the Jan 20 or 21st issue of the Hindu. Apparently, percentage of people paying income tax in India is 0.8% of the total population. This is because 70% of the population are in agriculture and they don't pay tax. The rest are below the poverty line. Based on this fact, the Dev Gowda Government is thinking of abolishing Income Tax altogether because it costs more to collect income tax than what is earned from that.
A: -It is indeed true that the percentage of people paying income tax in India is miniscule. Less than 1% sounds like its on the mark, although I am not conversant with the most recent statistics. Not only is agriculture off bounds but plenty of people use this loophole to escape paying taxes. There are countless households who use a few trees on their property to claim all income is generated from "orchards" and escape taxation altogether. It is also a fact that the vast majority of high executives in Indian-run companies have up to half their incomes paid in cash (for which they have to arrange enough operations that generate unaccounted for cash). Thus, not all people who escape taxation are in agriculture or below the poverty line. This, unfortunately, is a bad step - at least in the short run - since the government will not have the political will to fire all these income tax people. Thus, we will have no tax revenues but will still pay the cost of the same people's employment. However, I don't think that India will or should eliminate income taxes at the corporate level It seems to me that the best compromise for the government is to institute a flat tax at a low rate like 15% with some low level of exemptions and possibly augmented by relaxations for the amount of documented savings during the year. But it is probably pointless to have any income tax regime which exempts the agriculture sector to the scale that it does today. - It is my understanding that the individual states have the jurisdiction to levy taxes on agricultural income, but no state has had the political will to impose such a tax. - Isn't there a straight payroll tax for Central Govt employees that is deducted at source? IMHO, if India is to raise the level of income taxes collected, it should move to a system where all Govt. employees (at the very least) will have their taxes deducted at source. Hopefully, that should reduce the amount of evasion. Also as Sugato has pointed out, the source of the income should be irrelevant (i.e. whether it comes from agriculture or industry) when it comes to taxing it. Our planners were always in favor of zero taxes on agriculture for several reasons: (a) taxing agriculture would raise prices of agro commodities which would hurt the poor and raise prices of industrial products which use agro products as intermediate inputs, and (b) more than 50% of India's "poor" subsist on agriculture. Hence the tax base for