India should tax the rich more and enhance the tax-GDP ratio by increasing revenue from direct sources of tax to fund inclusive development, civil society organisations urged in their budget proposals for 2013-14 today.
"...the Union Finance Ministry (need) to address the lack of progressive structure in the country's tax system and raise the much needed additional resources for financing education, health care, food security," civil society organisations Centre for Budget and Governance Accountability (CBGA), Oxfam India and Christian Aid said.
Direct taxes can be increased by taxing the rich more, increasing the share of property tax and re-introducing of inheritance tax, they said at a conference here.
"Overall the tax effort is very low. We need to raise it from 15 per cent to at least 20 per cent. Other countries rely more on direct taxation, which raises greater revenues from those who can afford to pay more and therefore have a more progressive structure of taxation than India," Oxfam chief executive officer, Nisha Agrawal, said in her address.
India raises only 15.5 per cent of GDP as tax revenues- the lowest taxes of all G20 nations, while the average tax-GDP ratio in OECD countries is at 24.6 per cent, Ms Agarwal said.
She said, India should mobilise tax revenue and rely more on direct taxes instead of indirect taxes, which are regressive because it affects the rich and poor alike.
As per estimates, revenue potential of inheritance tax and wealth tax in India has been found to be about Rs 63,539 crore per annum or 0.8 per cent of GDP of 2011-12, roughly equivalent to current expenditure of about 0.9 per cent of GDP on health care, Oxfam said.
"Therefore...with the introduction of property taxes, which would largely fall on wealthy, India could double public expenditures on health care," it said.
Citing loopholes in international taxation, CBGA said double taxation agreement should be relooked.
"Discussions are...in progress to amend Double Taxation Avoidance Agreement (DTAA) with Mauritius. A comprehensive review of all DTAAs by the country is needed to understand the revenue implications and extent of treaty shopping currently taking place," CBGA director, Subrat Das, said.
He said government should increase direct taxes-mainly wealth and inheritance taxes-- eliminate corporate exemptions and close loopholes on tax avoidance.
"India could easily raise up to 20-25 per cent of GDP as tax revenues, which is the amount that would be necessary to fund modern welfare state that can deliver on its objectives of faster, inclusive and more sustainable development," Mr Das said.