March 28, 2025 02:21 pm (IST)
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Economic Survey 2015-16: Proposal to widen the tax net and phase out exemptions
New Delhi, Feb 26 (IBNS) The Economic Survey 2015-16 tabled in the Parliament on Friday by the Union finance minister Arun Jaitley proposed widening tax net from 5.5 percent of earning individuals to more than 20 percent, reasonable taxation of the better-off individuals with income from Real Estate and Agriculture, and phasing out of the tax exemption practice.
The Economic Survey terms the proposed Goods and Services Tax (GST) as a reforms measure perhaps unprecedented in the modern global tax history.
The GST, to be implemented by the Centre, 28 States and 7 Union Territories, awaits a Constitutional amendment requiring broad political consensus. Estimated to affect 2 million to 2.5 million Excise and Service Tax payers, the Survey said GST would impact dramatic changes in the Indian tax system.
Laying out the fiscal capacity roadmap for the 21st c, the Survey called for widening of the individual tax payers’ base.
Despite the number of tax returns filed picking up from mid-1980 onwards, nearly 85 percent of the economy remains outside the tax net.
Pointing out that just 5.5 percent of earning individuals are in the tax net, translating to a ratio of about 4 percent of tax payers to voters, the Survey says this ratio should be raised to a desirable estimate of about 23 percent.
As a step towards building fiscal capacity, the Survey suggested that the easiest way to widen the tax base would be not to raise exemption thresholds.
Making a study of the data since Independence, the document pointed out that the exemption thresholds have been raised much more rapidly than underlying income growth resulting in a widening of the wedge between average income and threshold limit.
Bringing more and more people into the tax net via some form of direct taxation will help in realizing the promise of Indian democracy, it notesd
The Economic Survey also called for a review and phasing out of the tax exemption practice that benefited the richer private sector.
The Survey recalled the promise to bring down Corporate Taxes from 30 percent to 25 percent while proposing the phasing out of exemptions in an orderly manner.
It also called for reasonable taxation of the better-off individuals regardless of where their income comes from, - Industry, Services, Real Estate or Agriculture.
The Survey identified Property Taxation as an area calling for urgent attention. Higher Property Tax Rates with periodic updation will improve local government finances, discourage speculation in real estate sector and pave the way for Smart Cities.
Another alternative to fiscal consolidation would be to reduce subsidies to the well-off amounting to about Rs. 1 lakh crore by better targeting subsides to the poor, stated the Survey.
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