Question
How will the improvement in the direct tax collections be sustainable according to the passage?
Read the following passage carefully and answer the questions given below them. Certain words/phrases have been printed in bold to help you locate them while answering some of the questions. India’s net direct tax collections reportedly grew by 18.2% in April-December 2017 from a year ago, with advance tax payments in December adding substantially to the kitty. This is welcome. But the improvement will be sustainable only if the government makes productive use of the audit trails created by the goods and services tax — that allows manufacturers to claim credit for the taxes paid on inputs across the production and income chain — to generate a unified base of tax potential that can be tapped. A mine of information is already available, post the GST rollout. Tax authorities must diligently follow the audit trails, supplementing them with big-data analytics. The gross value added in an economy is equal to gross profits (including depreciation ) plus wages and salaries. This holds true at the enterprise level as well. Effectively, the tax base is taxed once with a comprehensive GST. The need is to track how much a company has paid and how much is the actual value addition that has been made. The data must be correlated with what the company claims as its expenses that include electricity bill and payouts to the Employees’ Provident Fund. This would enable tax authorities to check whether a company has declared its income correctly, and assess its tax liability. Data thrown up by GST should become the starting point now to tap the potential income-tax base. Doubling the current tax/GDP ratio of about 16.5% (combined states and the Centre) should be the goal. And the share of revenues from direct taxes, at a mere 5.6% of the GDP, must go up. GST would offer up a bounty in the medium term. Lower rates of tax, ease of compliance and tough action against evaders will, together, push up the cost of non-compliance higher than the cost of compliance, which would induce people to pay up.
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