The Earth have 70 per cent Water or Ocean and 30 per cent land or
Continents. The nature seems too uneven and distribution of phenomena
follow certain patterns but evenness is not one of them. Homo Sapien
evolution to subsistence agricultural gave rise to concentration of
human population at certain places; division of labour; government and
to run the organizational apparatus- government imposed the taxes. The
land has different geographical natural resources and environmental
factors which decided the present pattern of human settlement. The same
was further shaped by historical, cultural, political, economic and
technological developments. This resulted in present day distribution of
human population and all type resources which is generally measured by
various developed parameters where economic/wealth is
directly/indirectly dominant factor.
To visualize the distribution
of a set of chosen values across a specified group that tend to have a
central, normal values, as peak with low and high extremes tapering off
relatively symmetrically on either side may be shown by bell curve. A
bell curve is a symmetric curve centred around the mean, or average, of
all the data points being measured. The width of a bell curve is
determined by the standard deviation—68% of the data points are within
one standard deviation of the mean, 95% of the data are within two
standard deviations, and 99.7% of the data points are within three
standard deviations of the mean. However, wealth seems to follow
different principle called 80/20 rule.
The 80/20 rule is also known
as the Pareto principle and is applied in Pareto analysis. It was first
used in macroeconomics to describe the distribution of wealth in Italy
in the early 20th century. It was introduced in 1906 by Italian
economist Vilfredo Pareto. Pareto noticed that 20% of the pea pods in
his garden were responsible for 80% of the peas. Pareto expanded this
principle to macroeconomics by showing that 80% of the wealth in Italy
was owned by 20% of the population. Other names for this principle are
the law of the vital few or the principle of factor sparsity.
A
chart that gave the effect a very visible and comprehensible form was
contained in the 1992 United Nations Development Program Report, which
showed that distribution of global income is very uneven, with the
richest 20% of the world’s population receiving 82.7% of the world’s
income. The principle also holds within the tails of the distribution.
The physicist Victor Yakovenko of the University of Maryland, College
Park and AC Silva analyzed income data from the US Internal Revenue
Service from 1983 to 2001, and found that the income distribution of the
richest 1–3% of the population also follows Pareto’s principle.
More
recently, Thomas Piketty in his now famous argument states that when the
rate of return on capital is greater than the rate of economic growth
over the long term, the result is concentration of wealth, and this
unequal distribution of wealth causes social and economic instability.
And, it is accelerating in the 21st century.
Economies of scales
creates centres of economical development such as London, Singapore,
Silicon Valley, great lakes, Bombay etc within the respective countries.
These centres and areas tend to concentrate income generating sources
spatially which give rise to spatial concentration of Income and
therefore taxes. For example, at world level we have USA, then within
USA we have Texas, California, Newark. Same is true for most of the
countries.
The government also adopts trickle down policies like
corporate income tax reduction, tax cuts for the wealthy, capital gains
exemptions and deregulation etc. As more money remains in the corporate
sector, business investment may be triggered with new factories,
upgraded technology, equipment, and an increase in employment. Wealthy
individuals may spend more, creating more demand for goods in the
economy. The increase in the labour market leads to more spending and
investing, creating growth in industries such as housing, automobiles,
consumer goods, and retail. The boost in the economy leads to tax
revenue increases and according to the trickle-down economic theory, the
additional revenue will pay for the original tax cuts for the wealthy
and corporations.
The government is always in the search of the
Income tax rate at which revenue is maximized. American economist Arthur
Laffer attempted to answer this eternal question. He developed a
bell-curve analysis that plotted the relationship between changes in the
government tax rate and tax receipts, known as the Laffer Curve. It
suggests that taxes could be too low or too high to produce maximum
revenue and both a 0% income tax rate and a 100% income tax rate
generate $0 in receipts. The economic effect is longer-term and has a
multiplier effect. As a tax cut increases income for taxpayers, they
will spend it. The increase in demand creates more business activity,
spurring an increase in production and employment.
In USA there is
two type of corporate taxes- uniform federal rate and varied state rate.
In India we have a single corporate tax rate. The corporate and
Individual tries to minimise its tax liability which over the years gave
rise to nearby specific locations generally small island countries as
tax heavens with effectively ZERO tax rate.
India wealth, economic
development and taxes too is product of the above-mentioned factors.
Modern India direct tax history starts after the Mutiny of 1857, the
British government faced an acute financial crisis. To fill the
treasury, the first Income-tax Act was introduced in February 1860 by
Sir James Wilson. Current income-tax law is governed by the 1961 act.
The British Empire was divided in three presidency- Calcutta, Bombay and
Madras. This gave rise to respective great cities and the industrial
hinterland. Later on, the capital was shifted to Delhi. Subsequent
developments Suez Canal; nearness to Oil of the Gulf countries;
social-economic-political factor shifted the crown of leading economic
city to Bombay from Calcutta. Last seventy years of economic development
have created various spatial areas of development and they have shifted
spatially over the time. Especial legislative measures such as exemption
of agricultural income; area specific and people specific has been
taken. Their analysis is required to see the impact.
Overall direct
taxes have robust growth since independence from 36 per cent of total
taxes now it is more than 50 percent of total taxes. However, direct
taxpayer has various categories mainly Individual and Company. Across
the income slabs over the time temporal analysis is needed to check the
pattern and likely determinants of the same. The type of income such as
business, salary, house property, capital gains and interest income have
behaved with time. Therefore, first we will analyse direct tax
contribution to GDP, Total Tax revenue, Corporate tax Vs Income Tax.
After that we will look for spatial change and developments across major
states along with dynamics of corporate tax Vs income Tax at spatial
level. State level GDP, Consumer pattern-automobile ownership comparison
Vs direct taxes will be made.
Thereafter, Income level analysis
will be made across category of Tax payers mainly corporate, individual
with type of Income- salary, business, capital gain, house property and
interest income.
The above analysis may suggest the government to
take specific measures and formulate policies to address the concerns
arising out of geographic and social concentration of capital. For
taxation policy too, it microscopes the target group for customized
measures.
Direct taxes are taxes that are levied directly on the income or wealth of individuals or businesses. They are called “direct” because they are paid directly to the government by the person or entity that is being taxed.
Direct taxes are an important source of revenue for governments and are used to fund a wide range of public services and programs. In many countries, direct taxes make up a significant portion of government revenue and are used to fund education, healthcare, infrastructure, and social welfare programs.
One of the main advantages of direct taxes is that they are progressive, meaning that they disproportionately affect higher income earners. This can help to reduce income inequality and promote social justice.
Direct taxes also have some limitations and drawbacks. For example, they can be complex and time-consuming to administer, and compliance can be a challenge for some individuals and businesses. Additionally, high levels of direct taxation can be seen as a burden on taxpayers and may discourage economic activity and investment.
Overall, the importance of direct taxes in a country’s tax system depends on a variety of factors, including the country’s economic and social policies, the level of government spending, and the preferences of policymakers and citizens.
Geography can play a role in taxation in several ways. For example:
-Taxation levels: The level of taxation in a particular country or
region may be influenced by its economic and political context, as well
as its geographical characteristics. For example, countries with
abundant natural resources may have lower taxes because they have a more
stable source of revenue.
-Taxation policy: Geography can also
influence the types of taxes that are levied in a particular country or
region. For example, countries with large agricultural sectors may rely
more heavily on taxes on agricultural products, while countries with
extensive trade networks may rely more on import and export taxes.
-Tax havens: Some countries or territories have lower tax rates or more
favorable tax regimes, which can make them attractive to businesses or
individuals looking to reduce their tax burden. These countries are
often referred to as “tax havens.”
-Tax evasion: Geography can also
be a factor in tax evasion, as individuals or businesses may try to use
cross-border transactions or complex corporate structures to avoid
paying taxes. This can lead to disputes between countries and can have
negative impacts on the overall fairness and effectiveness of a
country’s tax system.
Overall, the relationship between geography
and taxation is complex and depends on a variety of factors. However,
geography can play a role in shaping a country’s tax system and in
influencing the way that taxes are levied and collected.
In India, the taxation system is based on a federal structure, with the central government responsible for setting tax policies and collecting certain types of taxes, and state governments responsible for collecting other types of taxes.
The main types of taxes collected in India are:
-Income tax: This is a direct tax that is levied on the income of
individuals and businesses. Income tax rates vary based on the income
level of the taxpayer.
-Value-added tax (VAT): This is an indirect
tax that is levied on the sale of goods and services. VAT rates vary
depending on the type of goods or services being sold.
-Customs
duty: This is a tax that is levied on imported goods. The rate of
customs duty depends on the type of goods being imported and the country
of origin.
-Excise duty: This is a tax that is levied on the
production or sale of certain goods, such as tobacco, alcohol, and
fuel.
In terms of geography, tax policies and rates can vary within
India based on the state or territory in which a person or business is
located. Some states may have higher or lower tax rates for certain
types of taxes, or may have different policies for tax collection and
administration.
Overall, the taxation system in India is designed to raise revenue to fund public services and programs and to support economic development. However, the system can be complex and there have been ongoing debates about how to improve the fairness and efficiency of the tax system in India.
In India, direct taxes are taxes that are levied directly on the income or wealth of individuals or businesses. The main types of direct taxes collected in India are:
-Income tax: This is a tax that is levied on the income of
individuals and businesses. Income tax rates in India are progressive,
meaning that higher income earners are taxed at higher rates.
-Corporate tax: This is a tax that is levied on the profits of
companies. The corporate tax rate in India is currently 22% for domestic
companies and 40% for foreign companies.
-Capital gains tax: This is
a tax that is levied on the profits from the sale of capital assets,
such as real estate, stocks, or bonds. Capital gains tax rates in India
depend on the type of asset being sold and the length of time it was
held.
-Securities transaction tax: This is a tax that is levied on
the sale of securities, such as stocks and bonds. The securities
transaction tax rate in India is currently 0.1% for equity trades and
0.002% for debt trades.
-Wealth tax: This is a tax that is levied on
the net wealth of individuals and businesses. Wealth tax in India was
abolished in 2015.
The time series data from Department of Revenue, Ministry of Finance is analysed below. It is seen that the Corporate tax has been a major contributor to the Direct tax with average contribution of \(60\) percent.
As discussed above, corporate taxes are paid by companies; it is
essential to analyse the distribution of companies across India. The
data of companies is maintained by Ministry of Corporate Affairs. The
data is shared in open database of the Government of India.
Data of companies is available till 31.03.2021 for each state and Union Territory of India. The same can be assessed in Company Master Data. There are 17 attributes for each company. An example of data of the companies of UP is shown as below.
Data for each state is downloaded from the above site. It is then clubbed together to get the data set for all India company data. \(21,57,122\) records of companies were observed. For our analysis the we filtered the data from year 2000 till 2020. The number of records for this subset data was \(15,58,744\). The below bar graph reflects the number of companies in India (including all forms of company status) across 2000-2020.
As per the data set; the number of active companies during this
period is \(10,70,167+21,959=10,92,126\). Further, the
number of companies that have strike off is \(3,98,237+6,033=4,04,270\). Form macro
perspective, we are analyzing the data of active and strike off
companies which accounts for \(14,96,396\) companies.
The plot below gives a bird’s eye view of the active and strike off companies across 2000-2020 in India. It can be seen that from 2014, the registration of companies has increased, however the there has been a steep fall of companies getting strike off.
To further analyze the distribution of companies across state over
the years; the companies have been grouped as per Registrar of Companies
(RoC) instead of state. This is done to bifurcate Mumbai from rest of
Maharashtra. It is observed that the number of active companies has been
rising for RoC Delhi.
The slide bar may be moved to any particular
year in the plot below to get a bird’s eye view of the number of active
companies.