Amid concerns of India's falling direct tax revenues and tax buoyancy, the revenue department has said that drop was more due to the 'historic tax reforms' undertaken by the government and that the fall in tax collection is temporary in nature.
In a statement issued today, the revenue department says the growth trajectories of both arms of direct taxes - corporate tax and personal income tax - are intact and are rising steadily. The statement says that if adjusted for the revenue loss due to the tax reforms initiated last financial year, the growth rate in direct tax collection surpasses that of the GDP even in challenging times. So, it proves that recent efforts for the widening of the tax base undertaken by the government are yielding results.
The government in 2019-20 reduced the corporate tax rates from 30% to 22%, and also gave 100% tax exemption to individuals with up to Rs 5 lakh taxable income. The revenue impacts of these reforms have been estimated at Rs 1.45 lakh crore for the corporate tax and at Rs 23,200 crore for the personal income tax.
The revenue department explains that the fall in tax collection and buoyancy looks more severe if only net tax collection is considered. It says that a more correct picture emerges if compared with the gross collection (which removes anomalies created by the variation in the amount of refund given in a year) after taking into account the revenue foregone estimated for the bold tax reforms, and higher refunds in 2019-20.
Total refunds given in 2019-20 stood at Rs 1.84 lakh crore compared with Rs 1.61 lakh crore in 2018-19, an increase of 14% year-on-year.
As per the revenue department, gross tax collection (including the refunds) in 2019-20 was Rs 12.34 lakh crore against Rs 12.98 lakh crore in 2018-19. If the revenue foregone of Rs 1.68 lakh crore (Rs 1.45 lakh crore plus Rs 23,200 crore) is added to the gross tax collection of 2019-20, the total gross collection would have been Rs 14.02 lakh crore, which is a growth of 8% over the 2018-19.
It further says that with nominal GDP growing at 7.2% in 2019-20, the year sees a tax buoyancy of 1.12, a relatively good buoyancy number given a challenging year.
On the basis of gross direct tax collection (tax collection grew at 12.5% and nominal GDP at 11.2%), tax buoyancy in 2018-19 was 1.12, same as in 2019-20.