Pune region’s effective taxation lower than rest of India

Pune: The Union Budget came and went, but Puneites found little relief as most people complained of lesser individual benefits in the form of tax deductions.
The clamour for tax reductions gets louder ahead of the Union Budget every year. However, you will be surprised to know that the effective combined taxes that corporates and individuals pay in the Pune region are even lesser than the combined effective taxes paid nationally.
The situation is no different even if one includes indirect taxes.Even nationally, people pay much lesser taxes than what their counterparts in the developed nations pay. Combined taxation rates in the advanced economies are in the range of 25-35% of the GDP, but in India, it’s about 11-12%.
“The taxation rates are much lower in India and the biggest reason for this is that the exemption limit in India is almost twice the average per capita income compared to about a fifth in the US. Last year, 70% of those who filed returns (a small number in itself) showed an annual income of Rs 5 lakh or less (the lowest tax bracket then),” Vaibhav Sankla, director, H&R Block, said.
So, why does the Pune region — one of the hotbeds of economic activity in the country — pay lower taxes? When asked about it, experts said although many companies operated out of Pune and contributed to the economic activity here, they paid taxes in jurisdictions where their offices were registered.
“The Pune region is not home to any big public sector undertakings. So, the tax collections of such big enterprises are not reflected in the region,” a senior tax officer said.
The officer’s assessment also finds reflection in tax data. Over half of the tax collected in the Pune region is from individual taxes — a manifestation of many companies, headquartered elsewhere, setting up their offices here. However, what is lost in direct taxes, is possibly gained in indirect taxes, but due to change in regime to GST, these figures need further study.
“Agriculture is also a big source of income for many in western Maharashtra. Though agriculture output gets added to GDP, the income earned from the activity is not taxed. So even that is not reflected,” Sankla added.
Experts said there was a misconception that people who traded in agriculture produce were not required to pay taxes. “These middlemen are not exempted from paying taxes. It’s just that they have not been brought into the tax net,” an expert said.
“There are many such loopholes and there are many people who are liable to pay taxes but they don’t. We are not able to go after them because of the resource limitation of the income tax department,” another tax officer said.
Another reason why Pune region continues to be a low tax earner is the predominance of manufacturing in the region. “A lot of companies in the sector keep claiming depreciation on machinery and assets and pay lower taxes,” the officer added.