Do Not Kill The Golden Goose

Corporate Tax contributed 46.47 per cent, and Personal Income Tax contributed 53.31 per cent of total direct tax collections in India in the FY 2023-24.¹ Total collection on account of direct taxes in the FY 2023-2024 was ₹19.60 lakh crores. Thus, we find that taxpayers, both corporate and non-corporate, are major contributors to the government exchequer. GST contributed ₹18.01 lakh crore for the FY 2023-2024².

1 https://incometaxindia.gov.in/Documents/Direct%20Tax%20Data/Final-Approved-Time-Series-Data-2023-24-English.pdf
2 https://pib.gov.in/PressReleasePage.aspx?PRID=2016802

There were 7.5 crore individual taxpayers for the AY 2023-2024.³ This shows that only 5 per cent of the population pays tax in India or files tax returns. Out of this, 87 per cent has returned income of less than ₹10 Lakhs. Fifty per cent of the total individual taxpayers are salaried class, of which 82 per cent have income less than ₹10 lakhs. This shows that the majority of the taxpayers belong to the middle class. Individual taxpayers, and especially the salaried class are the worst hit by inflation and taxes. Over and above income tax, they pay GST on their gross spending. GST should be reduced on items of mass consumption to give relief to people. There is no social security for a large number of private sector employees, and they are taxed at a higher maximum marginal rate of 30 per cent as against the peak corporate tax rate of 25 per cent. There is a strong case for substantial relief to the middle class.

3 https://incometaxindia.gov.in/Documents/Direct%20Tax%20Data/Approved-version-Income-Tax-Return-Statistics-for-the-AY-2023-24.pdf

The government refers to taxpayers as “Pratyek Karadata — ek Rashtra Nirmata”(प्रत्येक करदाता एक राष्ट्र निर्माता). However, unfortunately, this Rashtra Nirmata is not given his due credit, respect, benefit or any social security. In fact, a ‘taxpayer’ is debarred from many government benefit schemes. It pains to see the hard-earned money of the taxpayers utilised in freebies and unproductive work.

Instead of rewarding taxpayers, they are penalised by assessing officers with high-pitched assessments, unreasonable penalties / demands, unfriendly communications, prosecution notices, litigation and so on. Complex tax laws, long-drawn litigation and ambiguity have resulted in uncertainty in tax system / compliances.

It is interesting to note that Mr Sanjay Malhotra, then Revenue Secretary⁴, echoed the sentiments of taxpayers while addressing the Directorate of Revenue Intelligence⁵ on 4^th December, 2024:

•  The government aims to make the tax system simple, easier to understand and comply with. He said that the aim is to reduce disputes and litigation.
•  He conveyed the government’s intent of building trust with taxpayers by avoiding harassment and inconvenience to honest taxpayers, at the same time dealing rigorously with dishonest.
•  He exhorted members present to remain alert and keep the interest of the economy ahead of the interest of the revenue.
•  He said that tax officials should desist from raising unwarranted high-pitched demands and keep economic growth in mind.
•  He said, “If in the process of garnering some small revenue, we are hurting the whole industry and economy of the country, that is certainly not the intent,”
•  He said, “Revenue comes in only if there is some income and so we have to be very cautious that in the process, as they say, ‘do not kill the golden goose’.”

4 Mr. Sanjay Malhotra has been appointed as the 26th Governor of Reserve Bank of India w.e.f. 11th December 2024
5 DRI is the apex anti-smuggling agency of the Central Board of Indirect Taxes & Customs (CBIC).

Mr. Malhotra’s comments carry a lot of weight, as he has played a pivotal role in shaping policies related to both direct and indirect taxes. On 31^st May, 2024, he met BCAS along with many other organisations and trade bodies to understand the challenges faced by taxpayers. While he has now taken up office as Governor of the Reserve Bank of India, let us hope that his successor will follow a similar approach and provide much needed relief to the taxpayers.

It is heartening to note that the government is seized of these issues and has set up a Consultative Group on Tax Policy at NITI Aayog⁶ to analyse tax policies and processes and suggest reforms that help in tax simplification, enhance tax collections, reduce tax compliances, and other costs for the taxpayers through improved filing, grievance redressal mechanisms and reduced litigation. Dr Pushpinder Puniha, IRS, the chairman of the Consultative Group on Tax Policy, along with Mr Sanjeet Singh, IRS, Senior Adviser at NITI Aayog, visited BCAS on 10^th December, 2024 to discuss the changes required in the direct tax laws to achieve the above objectives. They were very open, and their approach was pragmatic. The profession and business community have high hopes from this Consultative Group with regard to tax reforms.

6 National Institution for Transforming India (NITI)

UNION BUDGET 2025

Union Budget 2025 will be presented on 1^st February, 2025. One hopes that the Government fulfils the hopes of Aam Adami (Common Man) and brings in reforms to ease the tax burden and compliances. The government consults various trade associations, professional bodies and stakeholders before the Budget. However, once it is announced, there is hardly any discussion by the honourable Members of Parliament (MPs) while passing the same. It would be better if a Committee of Experts from across sectors is set up to study and evaluate the proposals in the Union Budget, including the Finance Bill, before the same is taken up for debate and discussion in Parliament. This group can highlight the pros and cons of various proposals, which would guide MPs while passing them.

ECONOMIC CHALLENGES AHEAD

It is well known that India is facing tough competition from countries like Vietnam, Indonesia, etc. Somehow, India has failed to attract desired investments and capitalise on the present geo-political and economic upheavals and the economic turmoil in Bangladesh, China (credibility crisis post-Covid) and other war zone countries. If India is to attract foreign investment and play a crucial role in the global market, then it needs to address some of its perennial problems, such as lack of stability and consistency in tax laws, adversarial tax regime, corruption, long-drawn tax litigation and complex laws.

It is imperative that India creates an image of a taxpayer-friendly jurisdiction, that cares for and respects all contributors to the progress of the country. India needs to focus on the generation of employment, exports and economic development. Revenue is the by-product of economic growth and should not become a hindrance to development.

At present, India is facing multiple challenges, namely, the slowdown of the economy (for the Q.E. Sep 2024, it is expected to be 5.4 per cent — a seven-quarter low), rising inflation and depreciating rupee⁷. The new RBI governor has a tightrope to walk on.

7 Rupee ended at 85.53/$1 on 27th December, 2024 – the steepest single day fall since 15th March 2023 Source: The Economic Times dated 28.12.2024.

NEED OF THE HOUR

In the present global scenario, India needs to play its cards wisely. As Mr. Malhotra rightly said, if there is income, revenue will come automatically. All we need to do is to provide a conducive environment for the business community to grow and prosper. A friendly and reasonable tax regime will give much-needed relief to the middle-class population. GST rates need to be reduced, as they are regressive, and ultimately, the end consumer (which is largely lower and middle-income class people) bears the burden.

As we bid adieu to 2024, let us hope that 2025 will bring a simplified tax regime in which the golden goose (taxpayers) will be so well treated that it will give more and more golden eggs for a very long time.

I wish you all a happy New Year 2025!