Why Small Roadside Food Sellers Evasion Escapes Tax Authorities: A Case Study of India
A common roadside food seller near any IT company in India can earn more than 50,000 rupees ($680) per month, but why can't the income tax department take any action on them? This article explores the factors behind this phenomenon and provides insights into the current tax evasion methods used by small vendors in India's informal economy.
Incredible Earnings and Hidden Costs
Consider the fact that Rs. 50,000 per month might seem like a reasonable income. However, the value of flour, vegetables, meat, oil, and other essential items used to create that income must be taken into account. The vendor likely has to procure these goods from black market sources, adding to the financial burden. Beyond that, the practicality of a vendor needing weekly payments, known as 'Hafta' (for the weeks rent), to local policemen should also be considered. These payments are made to secure permission to operate their business in a particular area, regardless of weather conditions.
Uncharitable Questions and Forgotten Labor
The complexity of these informal businesses also extends to the personal lives of the vendors. Many vendors have families, including wives and children who are often educated in English-medium schools. These vendors make significant sacrifices to provide better education for their children, which is often overlooked when discussing their financial contributions and work.
Challenges in Tracking Informal Businesses
These vendors often do not enter the formal tax system. They conduct their transactions in cash and typically store their money in cash as well. As a result, their finances are completely out of the system, making it nearly impossible to trace or pin transactions on them. However, recent policy changes have started to address this issue.
Current Tax Policies and Deductions
Currently, for small retailers with a turnover of up to 2 crore (Rs. 20 million), they are allowed to claim up to 6% of their total income as net taxable income. A vendor with a turnover of 6 lakh (Rs. 600,000) would have a net income of 36,000 rupees for taxation, well below the individual's income tax bracket. Therefore, these vendors are not typically taxable.
Recent Changes and Tracking Measures
In recent years, the Income Tax Department has implemented several measures to track and tax these hidden businesses. With the advent of digital payment methods, many of these small businesses are now accepting payments via digital wallets like Paytm, Google Pay, and others. Additionally, aggregating platforms like Swiggy, Food Panda, OYO, and others have started tracking the volume of business done by these vendors, providing a potential pathway to track their transactions.
The vendors might also be investing large amounts of money in property, shares, or mutual funds, which can be tracked. This digital traceability enables the tax department to identify and assess the income of such vendors more accurately. Furthermore, large transactions such as property purchases or significant deposits can be easily monitored and scrutinized.
Conclusion
The complexity of identifying and taxing small roadside food vendors in India highlights the intricate nature of the informal economy. While the current tax policies provide a certain level of leniency, recent changes and technological advancements have opened new avenues for tracking and taxing these enterprises. It is crucial for policymakers to continue addressing the challenges of tax evasion in the informal sector to ensure fair and equitable tax collection.