Rationalisation of income tax levels is an “important aspect” and it will be looked into but before that it needs to be ensured that the tax base is large enough for the government to be able to rationalise, Revenue Secretary Tarun Bajaj has said.

One of the key issues is that very few people are actually paying income taxes, he said adding that new set ups and regulations are being made so that more people pay their taxes but the government needs to work more on it. “With regard to the income tax levels, what is more important is rationalisation and not reduction because if the reduction is into play, the exemptions need to be lifted. The rationalisation of taxes is an important aspect. But before this, it must be ensured that the tax base is large so that there is not much reduction in the tax revenue of the country,” Bajaj said at the fourth edition of India Economic e-conclave organised by the Bengal Chamber of Commerce and Industry here on Friday. 

‘Not well laid out’

According to him, the new regime with respect to the income tax has not been well laid out because till about ₹8-9 lakhs of income, it makes no reason for anybody to move to the new tax regime. This is because, in the older structure, with exemptions, no tax is paid, on the other hand, with the new tax structure, people need to pay income tax as soon as their income is over ₹2.5 lakh, he added.

The government is in the process of analysing the data related to this and once this is corrected, the country will move onto the right direction. “We expect more people to pay taxes. Close to 11 crore people file taxes through the TDS route but only around 7 crore file returns. This situation needs to be improved,” he said.

Indirect taxes

With regard to the indirect taxes, a very detailed analysis has been done on the custom duties, Bajaj said. There are certain exemptions for a long period of time. Some of the not so useful exemptions have been cut off and barring a few items, the duties are quite moderate, he said adding that this will help ensure that the situation of inflation do not arise due to high duties.

“The revenue from customs is a secondary element. What is more important is the policy direction that is taken up. There are some more corrections that need to be made. There are efforts to reduce litigation and making the process simple so that all the segments of the population benefits from it,” he said.

The informal sector has been hit much harder than the formal sector due to the pandemic. This is the reason why some schemes of revenue expenditure are trying to take care of the informal sector. This continues to be a challenge of the government and it is one area where significant focus is being given, he added.

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