| 10 August 2008
India's reported near-50% growth in direct tax collections so far this year
is a stunning figure indeed, but has to be seen in context: tax collections
in total amount to a mere 10% of GNP, and of that about 40% is made up of direct
taxes. So the increase represents about 2% of GNP, and last year's fiscal deficit
was 7%, the lowest it has been for a while. The government isn't going to be
swimming in rupees just yet!
Robust growth in direct tax collections is a result of tax education and compliance
mechanisms put in place by the Income Tax department, says the Ministry of Finance.
That is no doubt the case; but an even more stunning figure is that fewer than
5% of Indians pay tax at all.
India is handicapped by one of the world's most entrenched and labyrinthine
bureaucracies, as anyone will know who has had dealings with officialdom. In
addition, India is a federal state, with all that implies for internecine warfare
between the central government and provincial governments, particularly as regards
tax collection.
Imagine being at the helm of a ship: you turn the wheel, but nothing happens.
After a few minutes you send a petty officer to find out what's going on. 'Oh',
he reports when he comes back, 'They don't want to go to port today, and anyway
they're having tea right now.' That's what it's like to be the Indian Finance
Minister.
It's that 5% figure which really matters, and that's one of the reasons the
central government is trying so hard to impose a nation-wide Goods and Services
Tax, which will create tax-paying relationships between the state and the swarms
of traders who can currently play ducks and drakes with the balkanized provincial
VAT system. It's a mighty task.
You have been reading an entry on the following blog:
Jeremy Hetherington-Gore Unleashed
Jeremy tackles the difficult issues head on!
Contact: jeremy@lowtax.net
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