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.