a tr t re in ndia 17.17
fiscal capacity the government needs to put in income from— industry, services, real
place a better tax regime which is only possible estate, or agriculture.
once the government is able to enhance its (iv) Property taxation needs to be developed.
legitimacy among the citizens. The suggestions24 India lacks systematic data on property
forwarded by the Survey in this regard are briefly tax and whatever is there it is very sparse.
being given here: This proves the low attention the country
(i) The spending priorities of the government has given to this issue. As property taxes
must include essential services which are are ‘progressive’ they are desirable. It
makes more sense because evading this
consumed by all citizens. For that matter,
tax is difficult as they are imposed on
action needs on public infrastructure, law
immovable (non-mobile) assets. With
and order, less pollution and congestion, the help of today’s technologies such
etc. properties can be easily identified.
(ii) Reducing corruption must be a high Higher rates on properties (with
priority. Though this will be fiendishly values updated periodically) can be the
(clever and imaginative) difficult. This is foundation of local government’s finances.
needed not just because of its economic This can provide local public goods and
costs but also because it undermines strengthen democratic accountability and
legitimacy of the state. The more citizens more effective decentralisation. Higher
believe that public resources are not property tax rates would also put sand in
wasted, the greater they will be willing the wheels of property speculation. Smart
to pay taxes. Improving transparency cities require smart public finance and for
through efficient auctioning of public India’s urban future a sound property
assets will help create legitimacy, and over taxation regime will be vital.
time strengthen fiscal capacity. One low hanging fruit is to avoid raising
exemption threshold and allow natural growth in
(iii) Subsidies to the well-off need to
income to increase the number of the taxpayers.
be scaled back. At present , it is 25
The Survey has suggested a simple method for
estimated to be around Rs. 1 lakh it—inaction. The Union Budget 2016–17 has
crore. Phasing down these bounties already begun this process—exemption limit for
and targeting subsidies for the poor is individual income tax has been left unchanged
important in strengthening legitimacy. together with a programme to link corporate
In the same way, the existing regime tax cut and phase out of the exemption regime
of tax exemptions redistributes income existing for the companies.
towards the richer private sector—it
dilutes the legitimacy of the state in the incoMe and consuMpTion
eyes of the poor citizens. There is need anoMaly
of putting in place a reasonable taxation
provision for the ‘better off’ section in the India’s tax to GDP ratio is very low, and the
country regardless of where they get their proportion of direct tax to indirect tax is not
optimal from the view point of social justice. The
24. Ministry of Finance, Department of Revenue, data released by the Government26 indicate that
Government of India, N. Delhi, April 2016.
25. Ministry of Finance, Economic Survey 2015–16, Vol. 1, 26. Based on the Union Budget 2017-18 and Economic
pp. 105-117. Survey 2016-17.