The Government gave out some interesting numbers.
The Revenue Secretary told a news conference that nearly 96% of the 32.5 million
who pay income-tax reported a taxable income of under `5 lakh; and only 2.2% (i.e.,
715,000 people) reported taxable income of over `8 lakh. Why is this
interesting ? Because when you match these with the income numbers put out by
the National Council of Applied Economic Research (NCAER), on the basis of its
household surveys, some numbers make sense while others don’t. For instance,
NCAER projected for 2009-10 that some 32.3 million households would have annual
incomes of over `2 lakh — which is a reasonably good fit with the total number
of people paying income-tax (the threshold being taxable income of Rs.1.6 lakh).
When you look at the high-income category, however,
the numbers diverge hugely. NCAER says that in 2009-10, there should have been
3.8 million families with annual income of over Rs.10 lakh, a figure that is
more than five times the 715,000 people who report income over `8 lakh (on the
plausible assumption that taxable income of `8 lakh is broadly compatible with
total income of Rs.10 lakh, because of the various tax exemptions available).
Admittedly, some households have more than one income earner, so it could be a
case of clubbing the incomes of husband and wife. Still, it would appear that,
while there is probably not much tax evasion by the middle class, those in the
upper class continue to be predominantly tax evaders.
The good news is that the extent of evasion may be
coming down — sharply. Back in 2004-05, only 122,000 people reported taxable
income of over Rs.10 lakh, whereas nearly six times that number now report
taxable incomes of over Rs.8 lakh. While incomes have been rising rapidly at the
top of the pyramid, few would have expected that India’s highest earners would
multiply so rapidly over five years. In other words, tax compliance has improved
dramatically — but even then, the scope for much greater compliance exists.
That conclusion would be contested by Surjit Bhalla,
who has argued that the rich are the most tax compliant group in the country
(with only 50% practising evasion !). He has used National Sample Survey data to
contend that there were 250,000 people with incomes over Rs.10 lakh in 2004-05
(when there were only 122,000 people reporting that amount of tax income), and
that the population of high-income earners would have gone up to 360,000 in
2006-07. On that kind of track, the number by 2009-10 should have been about
620,000. But since we have 715,000 reporting taxable income of `8 lakh and more,
it looks like 100% tax compliance by the high-rollers —which strains credulity.
Still, if compliance is improving, thank the spread
of tax deduction at source, and the cross-matching of computerised data with
regard to credit card spends, mutual fund investments and the like. But if one
were to assume that three-box cars are bought by only those in this income
bracket, there is another data point worth looking at — because 350,000
three-box cars were sold in the country last year. On the assumption that most
people buy a new car after five years, this figure too suggests many more
high-income people than exist in the tax records.
The point of focussing on this group is that 60% of
all income-tax revenue (or Rs.72,000 crore) comes from these 715,000 people ! If
the number coming into this category were to double, income-tax collections
would go through the roof.
