With almost the entire knowledge, gathered over thousands of years retrievable at the click of a mouse, access to and control of information, is the defining characteristic of the present era, aptly known as the Information Age, and also as the Computer Age/Digital Age/New Media Age.

Realising the electoral benefits of creating bogus political and historical narratives, politi- cal parties run huge troll factories that continuously dish out fake news. Similarly, hackers from Russia, China, Jamtara and Mewat create counterfeit finan- cial information that cheats the gullible and/or careless into parting with their money, which often runs into humongous amounts.

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A small degree removed from these gentlemen are the ersatz experts on social media, who offer their expertise on all topics; often with a desire to sound wise, but mostly with an agenda to promote a particular point of view.

Thus, just after Chandrayan-3 landed on the moon we had a surfeit of fake videos, as also experts discussing the technicalities of astrophysics and rocket technology that was far beyond their ken. A similar out-pour follows a win by India in any sport, with swan-necked professors, assuming the guise of rough-necked sportsmen.

At the next level, such dubious expertise is lapped up by interested parties to further their own agenda. Given the speed and penetration of social media, ersatz wisdom is accept- ed as true, long before a genuine subject expert can even formulate his view, much less express it. A case in point is a study on the emerging trends in Income-tax return filing by the research team of a Public Sector Bank.

Very wisely, the study incorporates a disclaimer at the end, to the effect that the study is ‘not a priced publication of the Bank,’ ‘no responsibility is accepted for the accuracy of facts and figures,’ and finally a clause disclaiming all liability for any consequences, should anyone rely on the study.

The findings of the Study are mostly mundane; the rise in the number of income-tax returns, more returns being filed within the return filing deadline and faster processing of returns by the Income-tax Department. However, some conclusions appear to have been drawn only to gather TRPs ~ without con- sidering all relevant factors. For example, by totalling income disclosed in all income-tax returns and dividing this figure by the total number of returns filed, the Study concluded that mean income has increased from Rs.4.4 lakh in assessment year (AY ) 2014-15
to Rs.13 lakh in AY 2023-24, signalling increasing prosperity. This observation was picked
up by PM Modi himself, for mention in X, Linked-in and a series of speeches. However, the veracity of this conclusion is compromised by leaving out the elephant in the room ~ rampant inflation, exceeding 6 percent annually, which resulted in the Consumer Price Index, rising from 140 on 31 March 2014 (base 2010) to 220 on 31 March 2023, that raised income levels correspondingly.

Additionally, a K-shaped recovery after the pandemic resulted in a disproportionate increase in the income and number of taxpayers at the top end. These two factors, not considered by the authors of the study, may substantially explain the increase in average income per return, and disprove the hypothesis about emergence of a new middle class.

Statistically speaking, a better measure for comparison of income levels across the years, could have been the comparison of median income for AY 2014-15 and AY 2023-24. Also, as a former taxman, I can say that the Income-tax Department practises a policy of benign neglect towards small taxpayers, because more than 80 per cent of income tax is paid by 10,000 entities, whose returns are diligently scrutinised by the Income-tax Department.
Suffering from a significant manpower shortage, the Department has neither the resources nor the time, to examine most of the 8 crore returns filed by taxpayers.

Another conclusion, that has drawn much media attention, is the assertion that 84 per cent returns received for AY 2011-12 had zero tax liability while only 64 per cent returns for AY 2023-24 showed zero tax liability, leading to two conclusions: a) income levels have increased, and b) tax compliance has gone up.

Here again, the researchers have omitted to consider two vital parameters; firstly, significant inflation and secondly, the fact that minimum incomeliable to tax has remained unchanged since AY 2014-15. Therefore, one can say that income levels have risen by inflation, putting more people in the taxable bracket.

Moreover, the study has cherry picked data for zero tax returns, by taking figures of AY
2012 for comparison with fig- ures of AY 2023.
If we consider statistics of more recent years, we find that 3.57 crore taxpayers paid tax in FY 2019-20, while only 2.24 crore taxpayers paid tax in FY 2022-23 (I have deliberately omitted FY 2020-21 and FY 2021-22, being pandemic years). However, this fact, which runs counter to the assertions in the study has been conveniently omtted.

The study has concluded that PAN-Aadhar linking of tax returns was the major and probably the only factor behind the increase in number of returns and the income shown therein.
Such a conclusion can only be reached by ignoring the tremendous efforts made by the Income-tax Department in digitisation, data mining and data analytics. Being the first mover in computerisation, the Income-tax Department’s unique identifier, PAN, was adopted as the basis for GSTIN (GST Identification Number), and many others identifiers.

Significantly, the Income- tax Department is offering prefilled return forms to taxpayers that incorporate all information about the taxpayer that is possible because collation of data obtained from a number of sources has enabled the Income-tax Department to build a profile of taxpayers.

Such intelligent and point- ed efforts have resulted in Direct Tax collections rising from Rs.68,305 crore in FY 2000-01 to Rs.16.61 lakh crore in FY 2022-23 ~ an increase of around 25 times.

Significantly, this growth rate is much more than the rate of natural tax growth (GDP growth rate + inflation rate) over the years, showing real success of the Income-tax Department in raising income-tax collections.
Probably, it would have been much better had the Bank team studied the anomalies that disincentivise small taxpayers like maximum taxation rate for manufacturing companies being 15 per cent, while the maximum taxation rate for a partnership firm or individual is 30 per cent.

Then, we have two separate tax codes for Direct and Indirect Taxes, which necessitates interaction with two sets of tax authorities for the taxpayer, and some leakage of tax revenues for the Government. Moving with the times, advanced economies have a comprehensive tax code em- bodying provisions of both Direct and Indirect Taxes.

Great Britain, from where we inherited our tax system, has integrated Direct Taxes (Inland Revenue) and Indirect Taxes (Customs and Excise) under His Majesty’s Revenue and Customs Board in 2005.Similarly, the IRS Code 1986 of the US, encompasses both Direct and Indirect Taxes. We also have to proceed on similar lines so that taxpayers have to deal with only one agency for tax-related matters and the tax system works as an integrated whole ~ not in separate silos of Central Board of Direct Taxes and Central Board of Indirect Taxes.

Ultimately, rising tax revenues may not guarantee prosperity, because the Government will not use taxpayer’s money as judiciously as a taxpayer will spend his own money.
As Winston Churchill, the British statesman had said long ago: “We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

(The writer is a retired Principal Chief Commissioner of Income-Tax)