But more needs to be done. For both direct and indirect taxes, we suggest measures to improve the yield of direct taxes. To augment revenue from personal income tax, the government should broaden the tax paying population. Attempts have been made to broaden the base of presumptive taxation, where incomes are estimated by including shopkeepers, small transport operators and the like. Later, a new estimated income scheme for contractors with turnover up to Rs 40 million and for owners of up to 10 trucks was introduced.
Presumptive taxation is suitable since evasion is rampant in the unorganised sector.
Easy to administer, such levies increase equity and efficiency by taxing those who never paid taxes earlier. The experience of countries like France, Israel and Turkey with presumptive taxation is not encouraging. We don't expect significant results. Nonetheless, India should continue to improve on the scheme. A major reason people avoid the scheme is fear of getting into the books of tax authorities.