The Centre's gross tax buoyancy more than halved to 0.7 in FY19 from 1.5 in FY17, proving the above-trend surge in tax mop-up post-demonetisation was short-lived.
As low growth in tax revenue is adding to the government’s fiscal woes, a senior tax official on Thursday hinted at a new strategy to boost direct tax mop-up, at the core of which will be moderate rates and simplified laws and systems aimed at improving compliance. “Lower rates improve compliance and that’s the focus of the report by the task force set up to review direct tax laws,” BloombergQuint quoted Akhilesh Ranjan, member, Central Board of Direct Taxes, as saying.
According to the news portal, Ranjan, who was also the head of the tax force which submitted a report on the Direct Tax Code (DTC), said: “The taxpayer must believe that the rate structure is reasonable, that perception must be there is taxpayers’ mind… “They must not feel it is a burden or an extortionary tax.” According to PTI, when asked about lowering corporate tax for all firms, he said the government is seized of the matter.
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“That has been reiterated by the finance minister recently also that we are moving towards lower rate and I am sure that will happen sooner or later. The government has already said that there is some need for some corporate tax rate reduction,” Ranjan said.
The Centre’s direct tax collection is lagging the budget target. In April-July, the y-o-y growth in direct tax collection was just 5.7%, even as the required rate to achieve the budget target for FY20 is about 17%.
The Centre’s gross tax buoyancy more than halved to 0.7 in FY19 from 1.5 in FY17, proving the above-trend surge in tax mop-up post-demonetisation was short-lived. The goods and services tax (GST) also did not bring the widely expected acceleration in revenue growth; though the GST rates on a most items were lower than the combined Centre-state rates at which these were taxed in the pre-GST period and tax base doubled, deceleration in GDP growth, compliance burden and the blow the new regime dealt to the informal sector and small businesses led to lower-than expected growth in GST collections.
On the DTC report, which has been submitted to the government, Ranjan said, “The report has not been (made) public, so I won’t be able to give any details on that. But the broad trends are that we have obviously focussed on compliance.”
Compliance is the cornerstone of any tax policy and it has different aspects. It is not just about tax rates but also about ease of filing, about modernising tax system, improving litigation system management as well as things like making tax law more comprehensible and organised, he added.
“So that’s what the DTC has tried to do, to come out with the non-disrupting established concepts. Carrying on with the policy that has already been laid down by the government and try to remove distortions, remove the complexities that have crept in over the years. All these things, the simplicity, comprehensiveness…should encourage the people (to pay taxes), that is the plan,” he said.