An autonomous research institute under the Ministry of Finance


Report on Presumptive Direct Taxation

Publication date

Jan, 1995


Report submitted to the UNDP.


Indira Rajaraman and Kanwarjit Singh


This report recommends the use of presumption as one way by which to increase the universe of taxpayers, and thus achieve sustainable fiscal correction in India. Presumption may be theoretically second-best to the ideal direct tax, based on self-declared income actuals with personalized deductions. But this ideal is not possible to achieve or even approach in developing countries like India, where a large volume of business is transacted in cash, and is not routed through the banking system. Faced with a consequent insufficiency of information records of the kind required for verification of self-declaration, enforcement of compliance becomes next to impossible especially in certain sectors and occupations. It is here that the need arises for base-broadening supplements to conventional direct taxation. The report examines the reasons for the failure of presumptive experiments in India, and points out that the Rs. 1400 alternative flat levy is not in fact an example of a presumptive levy since absolutely no presumption of any kind is involved. The report also recommends the use of asset­ based presumption for the corporate sector, as a way by which to combat the phenomenon of zero-tax companies.

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