Indian economy is facing challenges due to a number of factors such as slowdown in private consumption, investment and exports. Country's gross domestic product (GDP) growth has slipped to 4.5 per cent, while countries such as Vietnam and China are growing at over 6 per cent. It seems that India as a hub of the global business centre is losing its sheen compared to other countries. To boost the economy, finance minister Nirmala Sitharaman introduced a slew of measures on income tax front in the month of September 2019, but these are yet to bear fruits.
Some of the high-value decisions from the government were to reduce the tax for domestic companies from existing 30 per cent to 22 per cent and for the new manufacturing companies from existing 30 per cent to 15 per cent, minimum alternate tax was slashed from the existing 18.5 per cent to 15 per cent. The govt also removed 25-37 per cent surcharge on capital gains arising out of the sale of equity shares or equity-oriented funds liable for the securities transaction tax, in the hands of an individual/HUF. All these proposals put together are estimated to cost Rs 1,45,000 crore to the exchequer.
The government has already started penalising high-income individuals to make up for the tax losses and now those earning over Rs 2 crore is paying income tax at 39 per cent and those earning over Rs 5 crore at 42.7 per cent. There are demands to do away with dividend distribution tax, securities transaction tax and long-term capital gains tax on shares that could further burn a hole of over Rs 80,000 crore. The government is expected to reject this demand.
Minister of state finance has said in the Parliament that the Central GST collection fell short of the budget estimate by nearly 40 per cent during April-November 2019-20. The actual CGST collection during April-November, 2019 stood at Rs 3.28 lakh crore, while the Budget Estimate was at Rs 5.26 lakh crore for the said months.
If in the current situation the government does not cut welfare spending or increases taxes, it would need to increase borrowing to inject cash into the market. With increased government expenditures towards social welfare schemes such as Ujjwala scheme, Pradhan Mantri Kisan Samman Nidhi, Pradhan Mantri Kisan Pension Yojana, Atal Pension Yojana and others, roads ahead are full of challenges. The government needs hard cash, and that too at a time when revenues are failing to meet expectations.
The government has already started taking steps to push tax collections, especially on the GST front. Post corporate tax rate cut and already huge rate of tax on rich individuals, indirect tax is the only shoulder to bear the burden of the gloomy economy. The footprints of responsibility on indirect tax could be ascertained through various rules or notifications being issued by the government in recent times.
GST Council has restricted the claim of input tax credit only to those invoices that have been loaded by suppliers on GSTN portal, leading to deferment of the tax credit for various category of recipients. The government has also empowered the tax department to impose restrictions on the use of available input tax credit for risky recipients in select cases.
Government is likely to revisit the exemption list, increase the rate of taxes and also explore the possibility of whether cess can be levied on some services to make up for their revenue deficit. Tax officers with help of GSTN data analytics are issuing notices, calling for records and imposing hefty penalties on minor breaches of procedural tax laws, even if authorities are unable to prove any tax evasion or malafide intention on the part of taxpayers.
With 3.75 lakh crore blocked in excise and service tax litigation, the government came out with a dispute resolution scheme to settle down the pending disputes in one go as the interest and penalty will be waived on payment of tax dues on a voluntary basis. This scheme received a good response from the taxpayers resulting in a settlement of Rs 70,000 crore tax boosting the government kitty with Rs 30,000 crore. This scheme was also a clear indication of the government's intention to find ways to collect tax revenues in a single shot even if it comes with deep discounts.
The above strategies are falling short of generating enough funds for the government to meet its expenditure that is resulting in a widening gap for fiscal deficit. Now the government is expected to unload the burden on indirect taxes by withdrawing exemptions or increasing the GST on various items. The consumers will have to bear the load of indirect taxes, thereby the idea of benefitting the corporates by slashing the direct tax rate and then recouping the revenue deficit through indirect tax seems to be harsh on the general public. The year gone by has left us with many unanswered questions. Let's hope 2020 answers most of them. Above all, the tax policies in 2020 should centre around individuals.
(The author is Senior Partner at AMRG & Associates)