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 per cent in 2007-08, but declined to 9.6 per cent in 2009-10. It was 9.9 per cent in 2011-12. “Raising the tax-GDP ratio to above the 11 per cent 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 per cent 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 per cent of Budget estimates, lower than the last five-year average of 69 per cent.
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”.