Just a few weeks back, the whole country went ballistic about Mukesh Ambani, Anil Ambani and a few other corporate hunchos entering the world’s Billionaires’ List. They continue to be India’s richest men, despite a billion or two being stripped off their assets in the madness currently dogging the stock markets.

This story is not about their riches. But about how little income taxes the super rich in the country pay to the nation’s coffers. It may sound like straight from the Ripley’s Believe Or Not, but very true that none of India’s billionaires figures among the Top-20 income tax payees in the country. 

How much taxes the rich and famous shell out each year is treated as “top secret” by the Income Tax department as the matter is supposed to be “confidential.” But this much is for sure: For all the wealth they are supposed to have accumulated, Anil Ambani and Mukesh Ambani do not figure among those who have paid even Rs 1.5 crore as advance taxes upto December last for 2007-08. Just as an aside, interestingly, Mukesh Ambani let the world know that in November he made a small “gift” of an aircraft worth $ 60 million to his beloved wife Neeta on her 44th birthday!

When the government manages to squeeze out 30 per cent of every penny the “ordinary” salaried citizens make over and above their permissible income, pray, how do the top industrialists manage to flaunt all their wealth and still keep the taxman at bay?

The reason is simple: It seems that though company dividends are taxed, most industrialists make their moolah through dividends, on which no individual needs to pay taxes. As promoters of companies, they make crores, but it is all tax-free!

On a cruise
With the Indian economy cruising at a faster pace on the trajectory of higher growth to emerge as a major global economic power, it is quite natural to expect proportionate rise in the number of Income Tax payers. The emergence of Indian economy is primarily powered by the ever growing and dynamic middle class population, which now numbers nearly 350 million—more than the entire population of the United States.
But if one takes a look at the total number of Income Tax payers in India one is utterly disappointed. As per an estimate, there are only 30 million taxpayers in the country. In other words less than 3 per cent of the country’s population pays Income Tax.

Though on one hand the number of tax payers is increasing along with buoyancy in revenue collection, the rise is definitely not in tune with corresponding rise in growth of Indian economy as well as expansion of the middle and higher income groups.

Data compiled by the Comptroller Auditor General of India (CAG) shows that in 2004-05 there were only 1,22,000 taxpayers in the above Rs 10 lakh category. If one looks at just the sale of cars and other associated data, this does seem a shockingly low number.

The growing trend among the emerging neo rich at lavish expenditure, as reflected in the holding of expensive marriages and luxurious life, clearly suggests that the rich have been getting away with massive tax evasion. The most disturbing aspect of it is that it not only leads to revenue loss, but results in the generation of black money on a huge scale.

Some feel that tax evasion has virtually become a national sport. Experts point to the widespread scepticism about the efficiency of the state - the result of extensive corruption, economic mismanagement, and poor public-service provision - which has helped to sustain a culture of evasion. While it will be a Herculean task for any government to completely eradicate tax evasion, it can definitely control this menace through necessary measures.

But the more pertinent question is: Why is the number of Income Tax payers not rising proportionately in tune with expansion of the economy?

One reason is that a vast majority of Indians still work in the unorganised sector, where cash payments are common and concealment of income easy. Thus a sizeable chunk of population, which otherwise would have come under tax net, is not filing Income Tax returns. 

But analysts feel it is the phenomenon of rampant tax evasion, which is posing a serious threat to the economy. The endemic evasion is one of the reasons why a country of India’s size and potential collects only around 15 percent of its national income in taxes, roughly the same proportion as 15 years ago, as against 25 pc in the US and around 40 pc in Europe.

It is clear that a major chunk of people engaged in high-profile professions like law, medicine and entertainment, trade and businesses never show their true income. The common perception is that high incidence of tax evasion is primarily due to inefficient tax administration coupled with lack of initiative to nab high-profile tax evaders. Indeed, surveys often indicate that ordinary citizens perceive corruption to be widespread. A few years back, Transparency International in its report has revealed that some 66 percent of Indians surveyed felt their country's tax department was corrupt.

As part of a strategy to widen the tax base and check tax evasion the Income Tax Department is increasingly depending on making quoting of Permanent Account Number (PAN) as mandatory for various kinds of economic transactions.

As a senior official of the Central Board of Direct Taxes (CBDT) says, “There are many transactions where quoting of PAN has been made mandatory. The number of economic activities requiring mention of the PAN is being constantly expanded.”

Since boosting the share of national income based on Income Tax has become a priority for the government, the government apart from introduction of PAN has adopted measures to increase the taxpayer base and cut evasion. These include bringing more services under the tax net and an initiative to create a digital-information network about taxpayers that could pinpoint evaders.

The network, which was inaugurated in 2004,  but still under development, would enable tax officials to track such things as high-value purchases and large bank deposits, compare them with declared incomes on individual tax returns, and investigate any anomalies.

But the government hopes that with the growing focus on developing a tax payers-friendly tax administration will not only encourage taxpayer compliance but will also encourage potential tax payers to come under the tax net.
The government is also optimistic about further widening of tax base with the rapid rise in rank and file of young professionals in wide range of economic activities. 

Unfortunately, in the past, for checking evasion, stress had mostly been on legislative measures, forgetting that equal importance is to be given to administrative aspects. Experts feel the problems of tax evasion need to be tackled in two ways -- by legislation and taking effective administrative
measures.



POROUS TAX NET

*India’s rich and middle classes number more than 350 million
*Less than 3 per cent of the 1.2 billion population pays Income Tax
*Lavish lifestyles of many suggest massive black money and tax evasion
*Cash payments common, concealment of income easy
*Tax-free status to agriculture income leaves many out of tax net
*India collects only 15 pc of its national income in taxes; 40 pc in Europe
*People engaged in law, medicine, entertainment, trade and business rarely show their true income
*Quoting of PAN made mandatory to check evasion

BILLIONAIRES


India is a country full of contradictions. A Mercedes Benz worth millions of rupees will purr effortlessly next to a bullock cart on a kutcha village road --a reality the occupants of both seem to accept, silently, but uncomfortably.
As per the list of the world’s richest people released by Forbes recently, as many as four Indians -- steel tycoon L N Mittal, Mukesh Ambani, Anil Ambani and realty baron K P Singh -- have made it to the top 10 positions and there are 53 of them now. They have a cumulative net-worth of $340.9 billion on Forbes' 2008 World’s Billionaires list, consisting of 1,125 people with a combined wealth of $4.4 trillion.

In contrast, the number of people earning less than Rs 20 per day in India is also rising phenomenally, touching almost 80 per cent of the total population, according to latest reports.