Taxation is the link between a democratic state and its people. Citizens are obliged to pay their visible and direct contribution to the state for the sustainable people-government relationship. If the citizen doesn’t pay his tax he either becomes a free-rider or a non-participant and thereby loses the authority to hold the state accountable.
In their paper on “Taxation and development” Besley and Persson writes, “When the government has a larger stake in the economy through a developed tax system, it has stronger motives to play a productive role in the economy. Similarly, the countries with a higher share of income taxes in total tax collections tend to have more accountable governments”
The above statement raises an immediate question about how India fairs in a number of citizens paying the tax. – In comparison to the desired 23 %, only 4% of Indians pay taxes. Clearly, this striking gap in people’s participation is the most significant woe for the low fiscal capacity.
This concern has been voiced through different channels in the past. A chapter is dedicated in the economic survey of 2015-16 on the need of achieving better equilibrium between taxation and spending which underlines the importance of broadening the income tax ambit. It also suggests that the two prong approach of cracking a whip on tax evaders and stopping generous tax exemptions are required to include the ‘missing taxpayers’.
Prime Minister Modi in his “Mann-Ki-Baat” on 26th June raised a serious concern on the undisclosed assets. Stressing on the section of tax evaders who are a millionaire, Prime Minister Modi pointed out that only 1.5 lakhs people out of 1.25 crore population have declared annual income greater than 50 lacs. He set a deadline of 30th September for all the evaders to come clean and disclose their assets.
In the toughest ever tone by a PM on the matter, he said, “In a country where a government employee donates Rs 5000 every month out of his monthly pension of Rs 16000, nobody has a right to evade taxes. I appeal to all to take advantage of this good opportunity to be part of this transparent government scheme and consider this the last chance”.
To compliment the words with intent, the BJP govt put out advertisements in leading national dailies requesting citizens to declare their undisclosed assets before September 30, 2016, starting from June 1, 2016. The scheme promises immunity by exempting declared assets from Wealth Tax, scrutiny/enquiry and prosecution under Income-tax Act/Wealth-tax act, and immunity from Benami Transactions (Prohibition) Act, 1988. For the greater convenience, the declaration can be filed online or in print form to the jurisdictional Commissioner of Income-tax.
The larger subset of the undisclosed asset is black money stacked abroad. In past two years, Modi has been continuously mocked over his commitment on black money. Almost every work by the govt is disapproved and nullified by asking “Where is my 15 lacs” – referring to an out of context remark in a poll rally. Moreover, in spite of the numbers of populist measures by the govt, all efforts have been put by opposition to showcase the govt in the light of pro-capitalist and anti- poor.
The menace of the corruption and black money is deeply penetrated and grossly intermixed among politicians, business houses, and criminals. It can’t be entangled overnight. The small and steady steps like appointing SIT to look into undisclosed and overseas assets, declaring black money compliance window, negotiating with tax heaven countries like Switzerland and Mauritius, bringing Black money Act in parliament and controlling cash expenditures had helped the govt to unearth tax evasion of around Rs 50,000 crore of indirect taxes and undisclosed income of Rs 21,000 crore in past two years. This last golden chance by the prime minister Modi to disclose the assets before 30th September is another step in the right direction.