PM Modi having tea with former US President Obama during his visit to India (source: twitter)

In an unusual plan, the Ministry of Finance has decided to reward India’s top income tax payers by inviting them to tea with the prime minister or the finance minister. Other than the meeting, the top taxpayers would also be provided other non-monetary benefits.

The idea is to encourage taxpayers to willingly pay more, helping the Income Tax department to collect revenue with as little hassle as possible, a person familiar to the ministry affairs told Mint.

The said person added, “For ordinary persons, an extra financial support from the government means a lot, whereas for the high earners, the extra tax that they pay may be a very small fraction of their total income and may not mean much, going by the principle of diminishing marginal utility.”

The scheme is likely to be introduced in the current Modi’s government’s first Budget session, after being re-elected in the recently conducted Lok Sabha elections.

“By all indications, income redistribution will be a key theme under the new government, whether it is in the form of setting up pensions or of creating an environment for creating jobs and infrastructure in rural areas,” said Rajat Kathuria, director and chief executive of think tank Indian Council for Research on International Economic Relations.

Government data shows that 1,053 individuals with incomes of Rs 5 crore or more contributed over Rs 12,000 crore in personal income tax in assessment year 2017-18.

Presently, the income tax department issues certificates of appreciation to those who pay their taxes diligently.

The plan to reward top taxpayers comes at a time when it is crucial for the government to meet the fiscal deficit target as well as additional resources for welfare schemes.

Direct tax receipts for the year ended March 31 missed the government’s revised target of Rs 12 trillion, ending up at Rs 11.5 trillion. At the close of the fiscal year 2018-19, direct tax collection touched Rs 11.5 trillion, leaving a gap of Rs 50,000 crore against the revised revenue target of Rs 12 trillion.

Experts said a revival of the economic growth rate and stabilization of revenue from the goods and services tax (GST) may help the government bridge the revenue gap.

An expert committee on redesigning the Income Tax Act is expected to submit its report by the end of July.

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