While putting latest budget figures in focus, examine the role of Income Tax in overall revenue mobilization. In the light of these figures, do you agree with the view that time has come to abolish the personal income-tax?

As per Economic survey only around 5.5% of earning Indians pay taxes. Due to this the taxpayers to voters ratio is around 4%, making India a poor performer in tax to GDP ratio which is about 16.6 %, much lower than emerging market economies and OECD nations.
Since the contribution of income tax in revenue collection is limited a section of economists contend that India should abolish the Income tax. This will give a boost to the savings and will help in revival of the investment cycle. The loss of revenue due to the abolition of income tax can be balanced with spectrum auction and coal block auction. Apart from the revival of the economy, once the income tax is abolished, this will wipe out a lot of black money.
However, there are various issues associated with the abolition of income tax. One of the major issues is that the Government would lose tax revenues of over ₹3 lakh crore if income tax is abolished. Another issue is that progressive income tax can help reducing inequality. If income tax is abolished income inequity would grow.
Therefore focus should be on widening the tax net and minimizing the tax exemptions. Apart from that, the tax slabs should be made more progressive. Apart from that more revenue can be collected from proper utilization of property and wealth tax.
Post demonetization it is expected that tax net will widen with higher tax compliance. Instead of the abolition of income tax, the focus should be on minimizing exemptions, progressive tax structure, and better compliance. This will help in additional revenue collection which can be invested in health and education sector.

Question for UPSC Mains:
While putting latest budget figures in focus, examine the role of Income Tax in overall revenue mobilization. In the light of these figures, do you agree with the view that time has come to abolish the personal income-tax? India Budget | Financial Express

Published: September 23, 2017 | Modified:June 27, 2019

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