Context
Decline in income equality in recent years, a study by SBI Research
Key highlights of the report (From 2013-2014 to 2021-2022):
- In terms of Gini coefficient, income inequality of taxable income group has declined from 0.472 to 0.402.
- 36.3% of taxpayers have moved from lower income to higher income tax bucket.
- Top 2.5% of taxpayer’s contribution in income has declined.
- Female labour force participation is rising.
- Micro firms are transitioning towards small, medium and large size firms.
States whose Income Tax base is widening reports that persons filing Income Tax return got increased.
Gini Coefficient is one of the most widely used measures of income inequality.
Income Tax Base
- Total amount of income, property, assets, consumption, transactions or other economic activity subject to taxation by a tax authority
- Narrow tax base – Non neutral and inefficient
- Broad tax base – Reduces tax administration costs and allows more revenue to be raised at lower rates
Gini Co-efficient:
- Called as “Gini ratio”
- Measures the degree of income inequality in a population
- Coefficient vary from 0 (perfect equality) to 1 (perfect inequality)
- Zero (0) – means that everyone has the same income
- One (1) – represents a single individual receiving all the income
- Measured by 2 methods
- Pre- tax (market) income
- Disposable income – (takes into account of taxes and social spending)
Lorenz Curve
- Represent distribution of income in an economy
- Shows the proportion of income earned by an given percentage of the population
Source : PIB
Previous Year Question
Which one of the following effects of creation of black money in India has been the main cause of worry to the Government of India?
[UPSC Civil Services Exam – 2021 Prelims]
(a) Diversion of resources to the purchase of real estate and investment in luxury housing.
(b) Investment in unproductive activities and purchase of precious stones, jewellery, gold, etc.
(c) Large donations to political parties and growth of regionalism.
(d) Loss of revenue to the State Exchequer due to tax evasion.
Answer: (d)
