Record tax collection, cheering numbers – how India finally seems to be becoming a tax compliant country

Source:     Aug 23, 2018

India has largely become a tax non-compliant society: These were the words of Finance Minister Arun Jaitley in one of his early Budget speeches. The statement clearly set the tone — that the Narendra Modi government will work towards expanding the tax base.

A lot of small changes along with the impact of the Goods and Services Tax in the formalisation of the economy and sporadic impact of demonetisation have helped India to take, arguably, the first step towards becoming a tax compliant society. To begin with, there has been a dramatic rise in direct tax collection since 2016, data show. The income tax growth which was mere from 8.2% in FY16 rose to 26.8% in FY17 and 21.0% in FY18.

Moreover, tax collection in the financial year 2017-18 stood at the record Rs 10.03 lakh crore. And between April 1 and July 31, there has been a rise of 53% in the number of income-tax returns filed electronically, for which GST could be given credit. As compared to last year same period, e-returns jumped from 2.24 crore to 3.43 crore. Financial Express reported earlier that the combined impact of demonetisation and GST is estimated to have led to an additional 1.8 million taxpayers, roughly 3% of taxpayer base that existed before. Analysts say that along with easier filing process, Income Declaration Scheme has helped in a significant increase in numbers.

Rating agency Crisil said in a report that the Indian economy, which was marked with poor tax compliance due to the dependence of huge informal sector is starting to change due to some notable moves by the government. Now, hopes are high from GST to boost indirect tax collection as well. The government has not been able to meet its own target so far but experts hope that with more formalisation, the numbers would catch up in a couple of years. Along with an eye on the impact of GST, experts are also watching closely the proposal to overhaul the Income Tax Act. The government late last year had set up a task force to give recommendations on changes required to make income tax law people friendly, for which public consultation was also sought.