India’s inefficient tax collection methodology – a review is needed!
The main heads of tax collection in India are Income Tax, Goods & Services Tax (GST), excise duty, customs duty, and securities transaction tax (STT).
There is enough empirical data to show that our tax collection mechanism is faulty and there is definitely serious tax evasion at both the direct tax (income tax) and indirect tax ends (mainly GST).
For the purpose of better understanding, we need to break up the 2 main heads of tax collection (income tax on sources of income – different income heads) and GST tax – on consumption of goods and services.
We are all aware of the anomalies and failures of income tax. Certain types of income (agriculture income) are fully exempt, significant number of PAN Card holders do not file income tax returns.
Also, one can be reasonably sure that the maximum payment of income tax (% of income tax payable to taxable income) is in the middle tier. The bottom tier % of income tax paid will be low because of progressive taxation rates and allowed tax deductions, while the upper tier manages the taxability of income very well, exploiting the exemptions and set offs extremely well.
Similarly, we seem to be having some issues with GST collection. The geographical states spread across India and GST collections from those states linked with the Gross State Domestic Product (GSDP – cumulative being national GDP) are giving surprising results.
Note – there is not much available in the public domain on GST collection details in terms of applicable years and geography (state contribution). However, whatever data is available is raising plenty of issues on the quality of GST tax collection and the need to really review the entire tax collection and tax payment system.
For the year 2024/25, the Top 10 GST paying states of India and the GSDP generated by them for the year 2023/24 are as under. Note that the data years are different, but the issue of concern being raised does not get really impacted.
