At 75, India faced with its biggest challenge

There is a resurgence of direct taxes in the country, also of those filing returns. The Central Board of Direct Taxes (CBDT) has announced that the direct taxes, net of refunds, stands at Rs 14.7 lakh crore – a 19.41 per cent rise over corresponding period in FY 2022-23. This collection also touched 80.61% of total Budget Estimates of Direct Taxes for FY 2023-24. In 2022-23, the share of direct taxes was 54.62% of total tax revenue, up from 52.27% in 2021-22 and 46.84% in 2020-21 – the lowest in 15 years. It is widely estimated the government will exceed the Rs 18.23 trillion direct tax collection target set for FY2023-24. Direct taxes hit a 15-year high of 6.11% in 2022-23.

High tax revenue is a sure way for governments to take up public services, infrastructure development, and social welfare programmes. Progressive reforms taxing higher income earners at higher rates also promote income equality and social justice. A steady increase in the tax base creates greater fiscal space for governments, reducing their borrowing in the open market and thus facilitating easy credit for private sector. It is heart-warming to note that the country has shown a great resilience to overcome the pandemic-induced disruptions. The economy has been doing well and is expected to comfortably surpass the government’s growth estimate of 6.5 per cent in FY24. Net direct tax collections have increased by 160.52 per cent from ₹6,38,596 crore in 2013-14 to ₹16,63,686 crore in 2022-23.

Tax-to-GDP ratio demonstrates how well the government is managing its economic resources and controlling its taxation systems. It shows its ability to finance its expenditure. A higher ratio also denotes greater room for industries to source funds in the open market. Shifting to a low tax regime certainly helped facilitate the almost stable tax to GDP ratio. Certainly, demonetisation played its part in bringing considerable share of cash payments into the tax bracket. GST changes and, not in the last, the efforts of taxmen played a key part, say analysts. In the meantime, the good growth period for businesses also resulted in EPF (Employee Provident Fund) accounts growing by 13.95 lakh in November 2023. The cumulative net addition continues to outperform the previous year.

It is time for India, despite an improvement in its tax-to-GDP ratio over recent years, to brace to reach the OECD (Organisation for Economic Co-operation and Development) average of 34%. It still remains below the 6.3% ratio achieved in 2007-08, indicating room for improvement. India has emerged the fastest growing economy in the world. Nevertheless, economists raise the bar for it to scale up.

For India to become a developed nation, it requires a GDP growth of around 8 per cent for the next 25 years, which is essential to meeting the employment needs of the burgeoning numbers of its youth. Facilitation of higher growth of industries and services will help shift surplus labour from agriculture to more productive sectors. The share of agriculture in total Gross Value Added (GVA) of economy has declined from 35% in 1990-91 to 15% in the last financial year. India has to boost its employment elasticity i.e., the percentage growth in employment for one per cent growth in GDP. It is estimated despite GDP growing over 7% per annum, the growth in employment is close to 0.6% only. Around 18 million turn adults every year and add to them around 10 crore surplus in farm labour. Job creation has emerged the biggest challenge in the 75 years of India’s independence.