Survey against hike in tax rates; calls for widening base

Amid debate over imposing higher taxes on super-rich, the Economic Survey today said efforts should be made to raise revenue by widening tax base and not by increasing the rates.

"It is much better to achieve a higher tax-GDP ratio by broadening the base which is taxed rather than increasing marginal tax rates significantly -- higher and higher tax rates impinge more and more on incentives to undertake taxable activity, while encouraging tax evasion," it said.

Several experts, including PMEAC Chairman C Rangarajan, have pitched for higher rates of taxes on super-rich.

The Survey, prepared by a group of economist led by Chief Economic Advisor Raghuram Rajan, said it is better to achieve fiscal consolidation partly through a higher tax-GDP ratio than merely through reduction in expenditure as it would only hurt development spending.

The Tax-GDP ratio touched a peak of 11.9% in 2007-08, but declined to 9.6% in 2009-10. It was 9.9% in 2011-12.

"Raising the tax-GDP ratio to above the 11% level is critical for sustaining the process of fiscal consolidation in the long run," it said.

Gross tax revenue in April-December 2012 has grown by 15% to over Rs 6.81 lakh crore.

However, the growth in tax collection was "significantly" short of the growth envisaged in Budget.

The tax collection till December 2012, was 63.2% of Budget estimates, lower than the last five-year average of 69%.

The Survey said the slippage in revenue collection in the nine months of the fiscal indicates the "stiff challenge in the fourth quarter of the current fiscal for better marksmanship".