Are the Election Commission of India and the Income Tax department meant to be in competition?
Not yet. But that may be the case, soon. Particularly if the Government of India goes by the spirit of what the Economic Survey 2015-16 says.
In the very interesting chapter titled “Fiscal Capacity for the 21st Century”, the Survey starts with the truth that taxation is key to long run political and economic development. And along the line, it points out that the economic development of the country lags the political development, and calls this “the precocious Indian phenomenon”.
Very simply stated, it would amount to the fact that almost every Indian participates in politics. We guard our right to vote zealously. But we don't participate in the economic development of the country with a similar gusto. We don't want to pay taxes. Not in proportionate numbers. Only 4% of citizens, who vote, pay taxes. According to the survey, it should be 23% of the voters. Roughly 5.5% of earning individuals are in the tax net. Nearly 85% of the economy is outside it. The Survey says that tax paying and political participation are two important “accountability mechanisms” wielded by the citizens.
This is not to suggest that the rest of the voters are tax evaders or under-reporting taxes. They have legitimately gone under the tax radar due to the “generous” government policy.
The survey has not said that the Income Tax Department must bridge this gap the way the Election Commission of India has over the years, ensured a higher and higher voter turnout, constant reforms to make the elections clean.
It has however suggested steps the government may consider to convert its “democratic vigour” into strong fiscal capacity. If the government wants to do it passively, it will just have to refrain from raising exemption thresholds and allowing natural growth in income to increase the number of tax payers—a painfully slow process. The fast-tracking of it will involve spending priorities that all citizens consume, reduction in corruption, scaling back of the bounties to the well off—amounting to Rs1 lakh crores—and developing property taxation.
That is not an option for the Modi government, regardless of its strength in Parliament. It has assembly elections to contest. It has to ensure that 2019 Lok Sabha polls don't show the BJP's 2014 as a fluke. But without making a noise about converting democratic vigour into fiscal capaity, it has found a way out. Squeeze those who pay taxes, some more. In the form of cess for various causes. Cut where they can, some more. Like the interest of small savings including provident fund, beginning the new fiscal.