The extant tax law does not require filing of returns
if the income is below the taxable threshold (₹2.5 lakh).
This means that many professionals who can easily
manipulate their accounts never appear on the radar of the taxman.
The law should mandate filing of returns by all
professionals and proprietorship businesses regardless of their profit.
This will increase compliance by enabling the taxman
to scrutinise suspicious cases. There is also a case for the wealth tax.
Compared to income, the wealth level is harder to
manipulate; therefore, the tax is harder to evade.
For companies, the tax law allows offsetting of past
losses against future profits.
These provisions are widely misused by corporates by
claiming bogus expenses, to artificially reduce their profit and hence their
In, AY 2017-18, as much as 46% of corporates reported
either losses or nil profit.
Another 47% reported profit less than ₹1 crore. These
provisions need re-examining.
A large number of companies showing negligible or no
profit points to a continued prevalence of shell companies and other dubious
structures which require systematic investigation.
Moreover, the numerous tax exemptions also come in
handy for tax avoidance.
Big corporates benefit more from these exemptions.
Consequently, smaller companies face a higher effective tax rate compared to
This makes the tax regime regressive.
The Budget papers 2018, the effective tax rate of
companies with profit greater than ₹500 crore was only 23.94%, while it was
higher at 29.43% for companies with profits less than 1 crore.