Growth in the number of taxpayers

Over the past few years, the CBDT in its Central Action Plan has been targeting a 15 per cent increase in new taxpayers vis-à-vis taxpayers added during the previous year. The taxpayer base increased from 319.03 lakh taxpayers in FY 2006-07 to 337.38 lakh taxpayers in FY2010-11, registering an increase of 5.8 per cent with an average annual rate of growth of 1.5 per cent. The total direct tax collections increased by 94.2 per cent during the same five-year period. Thus, the increase in tax collection was around 16 times as compared to the increase in the taxpayer base. This indicates a very limited widening of the tax base over these years while the pressure on existing taxpayers has increased manifold.

In FY2011-12, taxpayers in the income slab of up to Rs.5 lakh made up 98.38 per cent of total taxpayers, while those in the above Rs.20 lakh slab constituted only 1.30 per cent of total taxpayers. This suggests that the income tax base is narrow with a constrained revenue yield, which has adversely affected tax buoyancy. Even the target of adding 15 per cent to the number of taxpayers has not been achieved in FY20 10-11. Details of corporate and non-corporate taxpayers and new taxpayers added are provided in Table below-

Total direct tax taxpayer base

(In lakh)

Financial
Year
No of
corporate
taxpayers
No of Non- corporate taxpayers Total
Taxpayer
base
Target of
addition in new
taxpayers
New
taxpayers
added
2006-07 3.98 315.05 319.03 21.83 21.28
2007-08 4.98 331.64 336.62 24.47 17.64
2008-09 3.27 323.22 326.49 20.28 17.84
2009-10 3.67 337.17 340.84 20.51 16.75
2010-11 4.96 332.42 337.38 19.26 14.82

 Source: 87th report of Public Accounts Committee, 2013-14

As shown in Table  below, 89 per cent taxpayers comprised of total taxpayers in the Rs.0-5 lakh income slab without commensurate tax yield. The Rs.10-20 lakh income slab has 4.3 per cent taxpayers. Tax collected in the Rs.0-10 lakh segment is Rs.3 6,986 crore and corresponding figure for Rs.10 lakh-Rs.20 lakh is Rs.17,858 crore. In the Rs.20 lakh and above segment, Rs.93,229 crore has been collected from only 1.2 per cent taxpayers. This shows that internationally our threshold is quite low but we collect a small amount on per capita basis from our lowest income tax slab. This keeps our taxpayer base as large as practically possible but does tend to transfer the tax pressure on upper slabs. Therefore, it is important to analyse (a) the extent to which taxpayers actually belong to higher slabs than they reveal in their tax returns, and (b) the extent of non-filers who should be brought into the tax net to expand the taxpayer base as quickly as possible. The taxpayer segments and their revenue yields suggest that the income tax base in terms of the proportion of contribution to revenue is rather narrow, which has adversely affected tax buoyancy.

No. of taxpayers in India and their slabs – FY 2011-12

Tax slab No. of taxpayers (in crore) Per cent of taxpayers Tax Collection (Rs. in crore)
0-5 lakh 2.88 88.9 15,010
5-10 lakh 0.18 5.6 21976
10-20 lakh 0.14 4.3 17,858
>20 lakh 0.04 1.2 93,229

 Source: Parliamentary Standing Committee Report on Draft Direct Tax Code, 2012

 Number of effective assessees
Year
Company
Individual
HUF
Firm
Trust
Others
Total
1996-97
227,228
976,1426
412,470
1,158,319
49,629
34,471
11,643,543
1997-98
274,319
11,194,953
437,251
1,172,647
51,865
36,701
13,167,736
1998-99
295,327
15,135,956
469,730
1,228,023
83,847
41,328
17,254,211
1999-00
309,627
17,653,745
507,843
1,272,217
87,165
46,427
19,877,024
2000-01
334,261
20,662,926
553,194
1,336,861
63,999
51,035
23,002,276
2001-02
349,185
23,734,413
607,519
1,378,706
97,272
58,784
26,225,879
2002-03
365,124
25,935,556
644,489
1,345,232
117,304
57,224
28,464,929
2003-04
372,483
26,624,224
654,848
1,338,613
154,276
57,952
29,202,396
2004-05
373,165
24,792,990
620,468
1,235,373
71,375
65,190
27,158,561
2005-06
382,021
27,370,659
642,759
1,234,424
74,543
58,077
29,762,483
2006-07
398,014
29,355,248
761,439
1,241,642
75,610
71,184
31,903,137
2007-08
498,066
30,868,243
780,853
1,368,373
74,077
73,189
33,662,801
2008-09
327,674
30,101,260
768,845
1,310,849
71,145
70,854
3,265,0627
2009-10
367,884
31,384,084
806,236
1,354,330
76,898
95,994
34,085,426
2010-11
496,872
31,035,394
761,911
1,229,722
119,378
95,847
33,739,124
2011-12
584,966
33,189,567
766,207
1,559,895
143,648
101,711
36,345,994

 Source: CBDT

The number of assessees fluctuates due to various reasons such as the closure of a business, demise of a taxpayer, retirement, change in economic activity affecting taxable income, etc. Additionally, several provisions of the Income Tax Act such as grant of additional exemptions/deductions, and increase in the basic exemption limit (for individuals & HUFs) also affect the number of taxpayers. As explained, with inflation, an increase in the basic exemption limit may indeed be necessary over time. That is why a policy to expand the taxpayer base from the self-employed as well as an increase in the rate structure at the top are needed to improve revenue performance.

The non-corporate taxpayer base has shown an annual average growth rate of 3.40 per cent for the period of FY2007-12. If one goes into various bands, the variation in the numbers is not apparent. For example, those with income of Rs.10 lakh and above decreased sharply from 5.79 lakh in FY2007 to 2.18 lakh in FY2008 but increased gradually to 6.57 lakh in FY2012. However, there is a more steady increase in the number of taxpayers in the categories of Rs. 5-10 lakh and Rs. 2- 5 lakh, with a significant rise in the latter from 38.36 lakhs in FY201 1 to 60.26 lakhs in FY2012. However, for taxpayers with income below Rs. 2 lakh, there is a moderate fluctuation in the number of taxpayers for the period FY2007-12. These patterns could be due to various reasons and an analysis of data in the hands of the income tax department could provide an explanation.

Source- TARC Report and as indicated above – Compiled by CA Sandeep Kanoi

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