Tax reforms Needed to Increase Tax Mobilization
Under-reporting and tax evasion are one of the major hurdles in resource mobilisation. This needs to be addressed by plugging the loopholes in the tax laws.
Individual tax mobilisation
- The law does not require filing of returns if the income is below the taxable threshold of Rs 2.5 lakh.
- Professionals who can manipulate their accounts never appear on the radar of the taxman.
- Hence the law should mandate filing of returns by all professionals and proprietorship businesses regardless of their profit.
- This will increase compliance by enabling the taxman to scrutinise suspicious cases.
- Moving to wealth tax from income tax because the wealth level is harder to manipulate; therefore, the tax is harder to evade.
- The tax law allows offsetting of past losses against future profits.
- Definitions of admissible expenditures are susceptible to easy manipulation.
- These are used by the companies to manipulate the profit levels.
- The numerous tax exemptions also come in handy for tax avoidance. Big corporates benefit more from these exemptions.
- The Income Tax Department has a very poor win rate before the appellate tribunal and the higher judiciary. Hence there is a lack of credible deterrence mechanism.
- Hence there is a need of deterrence power of the law, which depends on the likelihood of punishing tax evaders along with imposing a fine.
By integrating the GST, the income tax and the Ministry of Corporate Affairs’ databases there will be increased odds against the evaders.