Reasons:

♤ Low level of incomes so that most of the population remains below the tax net.

♤ Complex maze of taxes which hinders effective compliance.

♤ Presence of various exemptions in tax laws, which are utilized by tax payers to lower tax burdens.

♤ Failure of authorities to check tax evasion.

♤ Large informal sectors and mostly cash economy which makes it difficult for tax authorities to detect flow of money.

♤ Flow of black money in the economy.

The government has recognized the need to increase the tax base and has taken the following steps:

♤ Increasing voluntary compliances and making tax filing user friendly.

♤ DTC to codify all direct tax laws under one law which would use simple language, provide simplicity and stability in tax structure, consolidate taxing provisions, definitions, exemptions, incentives and procedures to make them uniform.

♤ The government appointed the Tax Administration and Reforms Commission to recommend ways to enhance tax base.

♤ Passing of Black Money Act and the Benami Transaction Act to grab tax evaders

♤ Implement GAAR from April 2017.

♤ Increased use of technology, e-filling, collecting data from multiple sources and quick disposal of cases to prevent tax evasion.

♤ In recent budget, introduction of presumptive taxation regime for small businesses and certain service providers.

These steps are the need of the time. However, measures like Black Money Act have limited effectiveness and need international cooperation as well. Hence, more needs to be done:

♤ Push for Multilateral agreement to address the issue of tax havens.

♤ Lower the ceiling of tax imposition.

♤ Gradual withdrawal on exemptions provided on investment and saving schemes.