TOPIC: General Studies 3
- Government Budgeting.
- Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Low tax base and concerns
India being home to 1.21 billion population needs high resource mobilization. One of the major mode of resource mobilization is tax collection. Only about 3% of Indians pay income tax. It is a matter of great concern that tax incidence is minimum in India.
Of nearly 127 crore Indians, only 2.6 crore pay income tax. The fact that less than 3% of Indians pay income tax is automatically construed to imply that a large majority avoid paying income tax.
- The Finance Minister, Arun Jaitley, made a sweeping statement in his Budget speech this year claiming that India is “a tax non-compliant society and too many people evade taxes”.
- Not only is the perception entrenched that too few pay income taxes but also that most Indians under-report their incomes.
The data story:
Prime Minister said in his New Year’s eve speech that “only 24 lakh Indians reported an income greater than 10 lakh rupees. Who can digest this?”
- This perception that India is a land of tax avoiders and black money hoarders was first mooted by former Finance Minister P. Chidambaram who, in his 2013-14 Budget speech, emphatically asserted that “only 42,800 persons admitted to an income of more than Rs.1 crore per year”.
- The insinuation was that there is massive under-reporting of income.
- Most readers will perhaps endorse this growing chorus that India has too few honest taxpayers.
The data reality:
Except that data belies this claim. That a large majority of Indians are tax dodgers may well be an urban legend.
- India’s per capita GDP is roughly Rs. 1 lakh, i.e. the average Indian earns a lakh of rupees every year.
- Given India’s large income inequality, it can also be inferred that when the average income is Rs. 1 lakh, a greater majority of Indians earn less than Rs. 1 lakh while a small number at the top earn large amounts.
- However, the income tax exemption threshold in India is Rs. 2.5 lakh, i.e. anyone earning below Rs. 2.5 lakh need not pay income tax.
- This implies that only those who earn more than 2.5 times the average income of Rs. 1 lakh will fall under the tax bracket.
- When a majority of Indians earn less than Rs. 1 lakh, an income tax exemption threshold of Rs. 2.5 lakh is sure to leave a vast majority out of the tax bracket. We also know from recent research by the National Sample Survey Office (NSSO) and Peoples Research on India’s Consumer Economy (PRICE) that the average income of the richest 20% of Indians is Rs. 95,000.
- This means that even a large majority of the richest 20% of Indians do not qualify to pay income taxes. In this context, it is not entirely surprising that only 3% of Indians pay tax.
- This is not a function of a large number of Indians avoiding tax, as portrayed, but merely a reflection of the fact that India is a terribly poor country with an extremely high income tax exemption threshold.
India is the only large economy with an income tax exemption threshold that is 2.5 times the average national per capita income.
- In most countries, including in emerging economies such as China, Brazil and Argentina, anyone earning more than half the average national income falls under the income tax bracket.
- India has increased the income tax exemption threshold on seven occasions, from Rs. 40,000 to Rs. 2.5 lakh in the last two decades.
- Contrast this with China, where the exemption threshold has just doubled from 10,000 yuan to roughly 20,000 yuan in the same period even though average incomes grew much faster in China than in India.
- If India lowers its income tax exemption to, say, Rs. 1 lakh from the current Rs. 2.5 lakh to be more in line with the rest of the world, nearly 1.5 crore more Indians will fall under the tax bracket.
- To be clear, such a move will not fetch any meaningful extra tax revenues for the government but will merely bring more people into the tax bracket.
It is thus misleading and specious to conclude that India’s small number of taxpayers is entirely a result of some genetic and cultural trait of dishonesty of Indian society at large.
- Even in the much richer United States, only 12.5 lakh people out of nearly 20 crore adults reported an income greater than 10 times the per capita GDP of the U.S.
- In the United Kingdom, only 2 lakh people out of an adult population of 4 crore reported an income of greater than 10 times the average annual income.
- Similarly, an annual income of Rs. 1 crore in India is equal to 100 times the average annual income.
- What proportion of people in other countries earn more than 100 times the average annual income? Just 43,000 people in the U.S., 5,000 in the U.K. and a few hundred in Canada.
Most urban Indians are unable to fathom the scale and size of India’s poverty. Their immediate, lived experiences lure them into this belief that a significant majority of Indians earn more than Rs. 20,000 a month to qualify to pay income taxes.
Casting aspersions on all of Indian society solely on the basis of the small number of taxpayers is plain egregious. The political compulsions of such class rhetoric are obvious as it serves as a good excuse for seemingly “tough” actions such as demonetisation.
Connecting the dots:
- The economic survey discussed the importance of having a wider tax base. Critically analyse the importance of India facing problems of low tax incidence and hence spillover issues on growth and development.
TOPIC: General Studies 2
- Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
- Welfare schemes for vulnerable sections of the population by the Centre and States and the performance of these schemes; mechanisms, laws, institutions and bodies constituted for the protection and betterment of these vulnerable sections
- Issues relating to development and management of Social Sector/Services relating to Health, Education, Human Resources.
Aadhar and Mid-day Meal Scheme- is there any connection?
In news: The notification by Union Human Resource Development (HRD) Ministry has mandated that children will not be served mid-day meals at school without Aadhaar cards from June 2017.
Aadhar in violation
- In 2014 judgement, SC has made it clear that Universal Identification Document, commonly known as Aadhaar cannot be made compulsory for any services to which people are otherwise entitled.
- It has also made it clear that the Aadhaar Act does not supersede these orders, until such time as the Court settles the issue of compatibility of Aadhaar with the right to privacy.
- It can only be used as voluntary identification for five specific government programmes:
- Public distribution scheme
- National Rural Employment Guarantee Act
- National Social Assistance Programme
- Jan Dhan Yojana
- LPG subsidies
- The current notification asks students to sign up for Aadhar by June 30 in order to continue to be eligible for the scheme. The necessity to have the Aadhar identity has been imposed on the “cook-cum-helpers” at schools as well.
The Right to Food (RTF) Campaign plans to challenge the Centre’s decision to make Aadhaar mandatory for children to avail themselves of the mid-day meal schemes in schools across the country.
Where lies the problem?
- School meals are an important entitlement of Indian children, legally enforceable under Supreme Court orders as well as under the National Food Security Act.
- This should be understood by keeping in mind that India also has the largest number of stunted children in the world at 72 million. Mid- Day meal provides for this opportunity to feed the children (4-12 years) universally in school.
- Mid-day meals have also helped to break the barriers of class and caste by imparting a habit of sharing meals to children of diverse backgrounds.
- The new notification is likely to affect nearly 120 million schoolchildren across the country.
- While the government’s rationale is that the decision will improve efficiency and transparency, Right to Food activists maintain that the notification is in violation of a children’s rights and Supreme Court’s order.
- According to RTF Campaign, numerous studies have shown that India’s mid-day meal scheme has made an important contribution to higher school attendance, better child nutrition and more effective learning.
Aadhar is not right platform
- The challenges faced by MDMS are different from DBT schemes like delivering subsidised LPG to people below the poverty line, or even the PDS.
- In MDMS, there are instances reported of poor hygiene in kitchen or incidences of food adulteration. Sometimes, it is difficult to even deliver nutritious food to remote areas. If food ingredients are there, then kitchens to cook them are not available within the schools.
- Undoubtedly, the Midday Meal Scheme has always been dogged by problems of corruption and inefficient delivery. But these problems are in no way linked to beneficiary fraud.
- It’s not clear how regulating access to the Midday Meal Scheme by linking it to the Aadhar cards will improve its efficiency.
- In fact, such an attempt might prove counterproductive and derail a programme that has improved school enrolment, reduced drop-out rates and improved child nutrition.
Aadhar and other schemes
Following central government’s scheme of Aadhar for Mid-day meal scheme, five other ministries have issued a series of 14 similar notifications for 11 schemes, including access to primary and secondary education.
The critical part of the notifications are that all of them the general benefits of Aadhaar, the scheme and its beneficiaries, and lay out a deadline for enrolling in Aadhaar to continue accessing these schemes.
However, none of these notifications specify the particular benefits of Aadhaar for that particular scheme.
- Beneficiaries of government schemes who will have to apply for an Aadhaar number include immensely vulnerable groups such as children between 6 and 14 years old, women rescued from sexual trafficking, and even disabled citizens who wish to apply for or continue getting scholarships or government-funded aids and appliances.
- Other beneficiaries listed in these notifications include adults who are not literate and seek skill training, health workers, aspiring women entrepreneurs and those seeking career guidance and jobs.
- The notifications have also raised concerns of privacy of beneficiaries, such as women rescued from trafficking and other groups.
- In February, several instances of security weaknesses in Aadhar, through leak of demographic data of children and instances of private firms illegally storing biometrics have come to light.
- People from the most discriminated against communities like ragpickers and safai karmcharis do not want their identity to be revealed are staying away from Aadhar enrolment.
Compulsory inspite of being voluntary
- The Right to education was created to “remove barriers to education” and has been interpreted to mean that no documents will be required for a child in the six to 14 age-group to take admission in a school.
- With compulsory presence of Aadhar, this is the first barrier – in the shape of a required document – being introduced in schools across India.
- For the senior citizens to be eligible for railway concessions on both counter and e-tickets, Aadhar is made compulsory
- For school and college students who wished to be eligible for the Central Government Scholarship and National Means-cum-Merit Scholarship schemes, Aadhar is compulsory.
- Individuals who sought to avail of the LPG scheme should have Aadhar card.
- Those who wished to gain benefits from the Employees’ Pension Scheme, had to have an Aadhaar card.
- Thus, Aadhar is touted as a medium to bring in discipline in government schemes. The government’s target of covering entire population is yet short by 13 crores. (As reported in 2016, Aadhaar was given to 103.8 crore people). This may explain the sudden deluge of Aadhaar-related announcements.
- However, the government should refrain from arm-twisting measures to complete its target. The intent of Aadhar based schemes is acceptable only when it truly wishes to wade out inefficiencies and corruption.
Conclusion- Use where necessary
The Aadhar scheme has proved a success in weeding out bogus ration cards, helped the government make savings in the MGNREGS, played a critical part of the PM’s scheme for LPG cylinders for people below the poverty line. But using Aadhar to solve mid-day meal problems, by making it compulsory for students has no logic and rationale in it.
The problem lies at the implementation level and not with any kind of beneficiary taking undue advantages. To solve MDMS problems, a clear chain of responsibility and accountability in those who operate the programme at all levels is required. Also, government should use other measures to increase enrolment of Aadhar and not create hurdles for children which affects their present and future.
Connecting the dots:
- Is Aadhar proving to be a boon or bane for citizens? Discuss in light of new methodology of government to give benefits only through Aadhar.
Demonetisation and the GDP: knock-out punch or mild tap?
Cost of Internet shutdowns
Reforming funding of polls and parties
The violence of certainty
The next chapter in Internet governance
The need for a debate on free speech
Using Economic Survey 2016-17 to gauge demonetisation impact on GDP growth
Will RCEP make or break industry?
Cooperatives should reinvent themselves
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