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Declining tax-GDP ratio

By Our Special Correspondent

NEW DELHI SEPT. 21. India's annual average income tax to GDP (net of agricultural income) ratio has suffered a steady decline in the last 40 years from 4.86 per cent in the Sixties to 4.45 per cent in the Nineties even as developing countries including Malaysia, Singapore, Indonesia and Thailand have been able to increase their share of IT revenues by two to three times the Indian rates.

A study by the Associated Chambers of Commerce and Industry of India (Assocham) has further revealed that IT revenue, as proportion of non-agricultural income, was higher during the 1990s (4.45 per cent) than in the 1980s (3.88 per cent) but still below the level in the 1960s (4.86 per cent) and 1970s (5.08 per cent). In 2001-02, it stood at 5.11 per cent and was considerably below the peak of 5.86 per cent recorded in 1963-64.

During the last few decades, India's competing nations outmatched `our efforts'. For instance, in 1997, Malaysia and Singapore collected 9 per cent of its GDP as IT revenues, Indonesia and Thailand 6 per cent each and Hong Kong 7 per cent in contrast to India's 3 per cent of total GDP.

By persisting with a low exemption limit and adopting schemes to widen the tax base, the Government has brought nearly two crore petty income earners into the tax net. But they hardly provide any revenue. These taxpayers disclose either nil income or only token amounts. Though in the last six years, the number of taxpayers was pushed up from 86 lakhs to 300 lakhs but the revenue remained practically the same.

The study further says that there is no major country in the world applying the rate of 31.5 per cent on income just above Rs. 1.5 lakhs or even Rs. 5 lakhs. It makes India's rate probably the highest.

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