The number of Income Tax Return (ITR) filings has gone up by 60 percent till August this year compared to last year. IT returns filed till 30th August 2018 stands at 5 crore compared to 3.1 crore returns filed till 29th August 2017. However almost a crore people filed returns without any tax liability. This shows that there is fear among citizens that if they do not file tax returns the government could take strict action against them. The government persuaded the individuals to file tax returns through advertisements and imposed penalty for anyone filing IT return after August 31 deadline. Today, 31st August is the last date for salaried individuals and businesses which does not need audit to file IT returns.
GST is being seen as main driver of increased tax filings. Last month finance minister wrote in a Facebook post “The implementation of GST as a single consolidated tax has had a significant impact even on direct taxes. Those who have disclosed a business turnover for the GST now find it difficult not to disclose their net income for the purposes of income tax. Last year, the impact of GST on direct tax collection was not visible. Since GST had been imposed in the middle of the year, it will be more apparent this year. The advance tax deposit during the first quarter of this year has seen a gross increase of 44% in the personal income tax category and 17% in the corporate tax category.”
The government also warned businesses that it will use data analytics to find out whether the corporate turnover and tax filings are close enough or not. Ajay Bhushan Pandey, Chairman of GSTN, said “it is time to leverage the large amount of data generated over the past one year to check for tax evasion, since all the processes are online, we have centralized data that is easy to analyze and search for discrepancies.” Two successive steps of demonetization and GST have helped the country to widen its tax base. In last financial year demonetization was main driver of increase in the number of taxpayers. The number of total Income tax Return (ITR) filers has gone up to 6.92 crores compared to 5.61 crores in 2016-2017, which indicates whopping growth by 26%. This financial year GST is expected to drive growth.
The increase in number of taxpayers has led to increased tax to GDP ratio of the country. The tax to GDP ratio was 10.6 percent in fiscal year 2015-16. It increased to 11.2 percent in fiscal year 2016-17, so demonetization helped to substantially increase tax to GDP ratio. In the fiscal year 2017-18, tax to GDP ratio increased to 11.6 percent due to implementation of GST. The tax compliance and tax to GDP ratio is expected to increase further this year riding on GST implementation. Still India has one of the lowest taxes to GDP ratio among BRICS countries. As we can see from the data given above, most of the developing countries have low ‘tax to GDP ratio’. In order to move from a developing nation to a developed one, a nation has to increase its citizens’ tax compliance. If tax to GDP ratio is low, a country cannot afford to provide basic amenities like health and education to its citizens. Universal access to these primary needs is required to build human capital and improve the standard of living. India is planning to introduce Universal Healthcare through the National Health Protection Scheme (popularly known as “Modicare”). The increased ‘tax to GDP ratio’ means that more money goes directly into government coffers. This money can greatly help to make India a welfare state of the kind that Deen Dayal Upadhyay had dreamt of.
