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Tax Collection and Its Effective Utilization

INDIAN ECONOMY
05 Dec, 2022

Theme : Indian Economy

Paper:GS-3

TABLE OF CONTENT

  1. Context
  2. Taxation in India
  3. Status of Union Government’s Tax Collection
  4. Types of Direct Taxes
  5. What does Healthy Tax Collection looks like
  6. Issues on the Expenditure Side
  7. Trends of Tax Collection in India

Context : Not with standing the likely slowdown in economic momentum in the second half of the year, the Union government’s tax collections are on track to surpass its budgeted target by a significant amount this year.

Taxation in India : 

The India Constitution is quasi-federal in nature, and the country has a three tier government structure.To avoid any disputes between the centre and state the Constitution envisage following provisions regarding taxation:

  • Division of powers to levy taxes between centre and state is clearly defined.
  • There are certain taxes which are levied by the centre, but their proceeds are distributed between both centre and the state. Example- Union Excise Duty.
  • There are certain taxes which are levied by the centre, but their proceeds are transferred to the states. Example-Estate duty on property other than agriculture income.
  • There are certain taxes which are levied by the central government, but the responsibility to collect them is vested with the states. Example- Stamp Duty other than included in the Union List.
  • There are certain taxes which are levied by the states, and their proceeds are also kept by states. Example: Erstwhile VAT

Status of Union Government’s Tax Collection : 

  • Gross tax collections have already touched the target: Data released by the Controller General of Accounts last week shows that gross tax collections have already touched 58 per cent of the full year’s target, growing by 18 per cent in the first seven months (April-October) of the current financial year.
  • Healthy growth in corporate tax collection: Under the broad rubric of taxes, direct tax collections have grown by a robust 26 per cent in the first seven months of the financial year, with healthy growth being seen across both corporate and income tax collections.
  • Higher than the nominal GDP growth: While the pace of direct collections has eased during July-October when compared to the first quarter, it continues to be higher than nominal GDP growth in the second quarter.
  • Healthy indirect tax collection: On the indirect tax side, GST collections continued to witness healthy growth, recording an increase of 11 per cent in November.

Types of Direct Taxes : 

  • Income Tax: Depending on an individual’s age and earnings, income tax must be paid. Various tax slabs are determined by the Government of India which determines the amount of Income Tax that must be paid. The taxpayer must file Income Tax Returns (ITR) on a yearly basis. Individuals may receive a refund or might have to pay a tax depending on their ITR. Penalties are levied in case individuals do not file ITR.
  • Wealth Tax: The tax must be paid on a yearly basis and depends on the ownership of properties and the market value of the property.
  • Estate Tax: It is also called Inheritance Tax and is paid based on the value of the estate or the money that an individual has left after his/her death.
  • Corporate Tax: Domestic companies, apart from shareholders, will have to pay corporate tax. Foreign corporations who make an income in India will also have to pay corporate tax.
  • Capital Gains Tax: It is a form of direct tax that is paid due to the income that is earned from the sale of assets or investments.

What does a Healthy Tax Collection look like ?

  • Higher devolution to states: Higher tax collections at the level of the central government imply that devolution to states will be higher than the budgeted amount of Rs 8.16 lakh crore. The months of August and November have in fact witnessed double installments as the Centre has stepped up devolution.

  • States can increase fiscal expenditure: Along with the interest free loan scheme extended by the Centre, higher devolution implies that states have considerable fiscal room to increase capital expenditure. However, this has not been the case so far. Capex by states has been rather muted.

  • Provides comfort to governments fiscal arithmetic: As per recent statements by revenue secretary Tarun Bajaj, the government is now hopeful of exceeding the budgeted target by nearly Rs 4 lakh crore. With its spending also likely to surpass earlier expectations by a considerable margin, higher tax collections will provide some comfort to the government’s fiscal arithmetic.

Issues on the Expenditure Side : 

  • Increased subsidy bills: On the expenditure side, the Union government is facing a massive increase in its subsidy bill.
  • Spending is more than actual budget: Actual spending on the food and fertilizer subsidy and also on LPG will be significantly higher than what has been budgeted for. This is likely to make the fiscal situation challenging.
  • Effective utilization is necessary: Considering that the central government has maintained the momentum on its capital spending, growing by around 60 per cent in the first seven months of the year, the overall general government fiscal impulse will depend on how effectively states are able to utilize the extra space available to them.

Trends of Tax Collection in India : 

  • The tax-to-GDP ratio is the ratio of tax collected compared to national gross domestic product (GDP). The 2016 Economic Survey said that India’s tax to GDP ratio is 16.6 percent, which is much lower than the emerging market economy average of 21 percent and OECD average of 34 percent.
  • India has one direct taxpayer for every 16 voters.
  • Only 1% of India’s population pays income tax.
  • India’s direct to indirect tax ratio is roughly 35:65. This is in contrast to most OECD economies where the ratio is the exact opposite, 67:33 in favor of direct taxes.

FAQs : 

  1. How is Stamp Duty Collected?

ANS. There are certain taxes which are levied by the central government, but the responsibility to collect them is vested with the states. Example- Stamp Duty other than included in the Union List.

  1. How was Erstwhile VAT levied?

ANS. There are certain taxes which are levied by the states, and their proceeds are also kept by states. Example: Erstwhile VAT

 

Theme : Conservation, Environmental Pollution & Degradation, EIA

Paper:GS - 3

TABLE OF CONTENT

  1. Context
  2. Soil
  3. Composition of Soils
  4. Importance of Soils
  5. Soil Degradation and Its Composition
  6. Plans of FAO
  7. India’s Soil Conservation Strategy

Context : As soil is the basis of food systems, it is no surprise that soil health is critical for healthy food production. World Soil Day (WSD) 2022, annually observed on December 5, aligns with this.

Soil : 

  • Soil is the loose material of the earth’s surface in which the terrestrial plants grow. It is usually formed from weathered rock or regolith changed by chemical, physical and biological processes.
  • Theme of the World Soil Day : WSD 2022, with its guiding theme, ‘Soils: Where food begins’, is a means to raise awareness on the importance of maintaining healthy soils, ecosystems and human well-being by addressing the growing challenges in soil management, encouraging societies to improve soil health, and advocating the sustainable management of soil.

Composition of Soils : 

  • Mineral matter: It includes all minerals inherited from the parent material as well as those formed by recombination from substances in the soil solution.
  • Organic matter: It is derived mostly from decaying plant material broken down and decomposed by the actions of animals and microorganisms living in the soil. It is this organic portion that differentiates soil from geological material occurring below the earth’s surface which otherwise may have many of the properties of a soil. (Note: The end product of breakdown of dead organic material is called humus.)
  • Air and water: Normally, both air and water fill the voids in soil. Air and water in the soil have a reciprocal relationship since both compete for the same pore spaces. For example, after a rain or if the soil is poorly drained, the pores are filled with water and air is excluded. Conversely, as water moves out of a moist soil, the pore space is filled with air. Thus the relationship between air and water in soils is continually changing.

Importance of Soils : 

  • Healthy soils are essential for our survival: They support healthy plant growth, habitat for many insects and other organisms, enhance both our nutrition and water percolation to maintain groundwater levels, and act as a filtration system for surface water.
  • Second largest carbon sink after ocean: Soils help to regulate the planet’s climate by storing carbon and are the second largest carbon sink after the oceans. They help maintain a landscape that is more resilient to the impacts of droughts and floods.
  • Contribute to the economies: They also support buildings and highways and contribute to the economies of our cities. For instance, the rich, deep fertile soils of the Ganga plain, especially its delta and the coastal plains of Kerala support a high density of population through agricultural prosperity.

Soil Degradation and Its Composition : 

  • Main drivers of soil degradation: The main drivers contributing to soil degradation are industrial activities, mining, waste treatment, agriculture, fossil fuel extraction and processing and transport emissions. Further, excessive use of fertilizers and pesticides, and irrigation with contaminated wastewater are also polluting soils.
  • Reasons behind the nutrient loss: The reasons behind soil nutrient loss range from soil erosion, runoff, leaching and the burning of crop residues.
  • Increasing soil pollution undermines food security: Today, nutrient loss and pollution significantly threaten soils, and thereby undermine nutrition and food security globally.
  • Soil degradation affects around 29% of India’s total land area: Soil degradation in some form or another affects around 29% of India’s total land area. This in turn threatens agricultural productivity, in-situ biodiversity conservation, water quality and the socio-economic well-being of land dependent communities. Nearly 3.7 million hectares suffer from nutrient loss in soil (depletion of soil organic matter, or SOM).
  • Irreparable consequences: Impacts of soil degradation are far reaching and can have irreparable consequences on human and ecosystem health.

Plans of FAO : 

  • To increase capacities of farmers to farm livelihood: The FAO, in association with the Ministry of Rural Development, supports the Deen Dayal Antyodaya Yojana-National Rural Livelihoods Mission (DAY-NRLM) Community Resource Persons to increase their capacities towards supporting on-farm livelihoods for the adoption of sustainable and resilient practices, organic certification and agri-nutri-gardens.
  • Target states: The FAO works in eight target States, namely, Madhya Pradesh, Mizoram, Odisha, Rajasthan, Uttarakhand, Chhattisgarh, Haryana and Punjab, for boosting crop diversification and landscape-level planning. In Andhra Pradesh, the FAO is partnering with the State government and the Indian Council of Agricultural Research (ICAR) to support farmers in sustainable transitions to agro-ecological approaches and organic farming.

India’s Soil Conservation Strategy : 

  • Five- pronged strategy: The Government of India is implementing a five-pronged strategy for soil conservation. This includes making soil chemical-free, saving soil biodiversity, enhancing SOM, maintaining soil moisture, mitigating soil degradation and preventing soil erosion.
  • Soil Health Card (SHC) scheme: Earlier, farmers lacked information relating to soil type, soil deficiency and soil moisture content. To address these issues, the Government of India launched the Soil Health Card (SHC) scheme in 2015. The SHC is used to assess the current status of soil health, and when used over time, to determine changes in soil health. The SHC displays soil health indicators and associated descriptive terms, which guide farmers to make necessary soil amendments.
  • Pradhan Mantri Krishi Sinchayee Yojana: Other pertinent initiatives include the Pradhan Mantri Krishi Sinchayee Yojana, to prevent soil erosion, regeneration of natural vegetation, rainwater harvesting and recharging of the groundwater table.
  • Promoting organic farming practices under National Mission for Sustainable Agriculture (NMSA): In addition, NMSA has schemes promoting traditional indigenous practices such as organic farming and natural farming, thereby reducing dependency on chemicals and other agri-inputs, and decreasing the monetary burden on smallholder farmers.
  • FAO’s various initiatives to support government efforts in soil conservation: The Food and Agriculture Organization of the United Nations (FAO) undertakes multiple activities to support the Government of India’s efforts in soil conservation towards fostering sustainable agrifood systems.
  • FAO’s collaboration on developing data analytics and forecasting tools: The FAO is collaborating with the National Rainfed Area Authority and the Ministry of Agriculture and Farmers’ Welfare (MoA&FW) to develop forecasting tools using data analytics that will aid vulnerable farmers in making informed decisions on crop choices, particularly in rainfed areas.

FAQs : 

  1. What is Soil ?

ANS. Soil is the loose material of the earth’s surface in which the terrestrial plants grow. It is usually formed from weathered rock or regolith changed by chemical, physical and biological processes.

  1. What is the 5-Pronged Strategy ?

ANS. The Government of India is implementing a five-pronged strategy for soil conservation. This includes making soil chemical-free, saving soil biodiversity, enhancing SOM, maintaining soil moisture, mitigating soil degradation and preventing soil erosion.