GoI social media posts said that 6.7 million income tax returns had been filed till 11pm on July 31, an hour before the deadline. To put that number in context, there are 617 million individuals with a PAN, of whom 467 million have also linked it with their Aadhaar. The number of PAN allottees exceeds the size of the workforce. On paper, India potential tax base seems unusually large. However, from the practical standpoint of revenue raised, it despairingly narrow. On account of pandemic-induced distortions in the last two years, the five years between 2015 and 2020 are the best recent period to get a sense of trends in the tax base. Only 20% of non-corporate assessees in 2015-16 had an income exceeding Rs 5 lakh. Five years later, it had increased to 24%. But the increase in the size of the base that represents the potential for meaningful tax collection was less than 1 percentage point in a year. In 2018-19, about half of the 58.7 million returns filed among all taxpayers showed no income. Therefore, the slice of the potential tax base that yields revenue is tiny. Corporate tax assessments give an even clearer picture of the narrowness of the base. GoI budget showed a corporate tax base of 9.17 lakh firms in 2019-20. Of this, a mere 0.2% or 1,843 companies contributed 69% of the corporate tax. It no exaggeration to say that the budget performance is influenced by less than 2,000 firms. A key reason for the narrow base is the tax exemption window, described by the budget as indirect subsidy to preferred taxpayers. A wide exemption window and high statutory rates have given India the worst of both worlds. To illustrate, firms with a pre-tax profit above Rs 500 crore had 58% share in the total profits open to taxation. These firms had an effective tax rate of 20.19% in 2019-20 when the average statutory rate was 34.58%. Successive governments have moved towards narrowing the window of exemptions, but it not been fast enough. India direct taxes contribute a little over 50% of the total tax revenue. It needs to be more for an economy with a per capita income of around $3,000. The way forward is greater use of AI and a legal architecture oriented towards widening th GoI social media posts said that 6.7 million income tax returns had been filed till 11pm on July 31, an hour before the deadline. To put that number in context, there are 617 million individuals with a PAN, of whom 467 million have also linked it with their Aadhaar. The number of PAN allottees exceeds the size of the workforce. On paper, India potential tax base seems unusually large. However, from the practical standpoint of revenue raised, it despairingly narrow. On account of pandemic-induced distortions in the last two years, the five years between 2015 and 2020 are the best recent period to get a sense of trends in the tax base. Only 20% of non-corporate assessees in 2015-16 had an income exceeding Rs 5 lakh. Five years later, it had increased to 24%. But the increase in the size of the base that represents the potential for meaningful tax collection was less than 1 percentage point in a year. In 2018-19, about half of the 58.7 million returns filed among all taxpayers showed no income. Therefore, the slice of the potential tax base that yields revenue is tiny. Corporate tax assessments give an even clearer picture of the narrowness of the base. GoI budget showed a corporate tax base of 9.17 lakh firms in 2019-20. Of this, a mere 0.2% or 1,843 companies contributed 69% of the corporate tax. It no exaggeration to say that the budget performance is influenced by less than 2,000 firms. A key reason for the narrow base is the tax exemption window, described by the budget as indirect subsidy to preferred taxpayers. A wide exemption window and high statutory rates have given India the worst of both worlds. To illustrate, firms with a pre-tax profit above Rs 500 crore had 58% share in the total profits open to taxation. These firms had an effective tax rate of 20.19% in