Demonetisation effect! Direct tax collection rises dramatically after 2016; here’s proof in 1 chart

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Updated: May 29, 2018 1:22 PM

According to Crisil, the income tax growth increased from 8.2% in FY16 to 26.8% in FY17 and 21.0% in FY18. The corporate tax growth in the corresponding years were 5.7%, 7.0% and 16.3% respectively.

Demonetisation effect? Direct tax collection rises dramatically after 2016; here's proof in 1 chartDirect tax collection has surged dramatically post 2016 — thanks to the Income Declaration Scheme and demonetisation.

Direct tax collection has surged dramatically post 2016 — thanks to the Income Declaration Scheme and demonetisation. The direct tax collection improved in the last two years, following the Income Declaration Scheme and demonetisation, a report by Crisil has said. “This indicates a significant jump in the number of new income tax filers,” Crisil said.

What’s interesting to note is that direct tax collection surged even as GDP growth slowed down in FY17 and FY18. According to Crisil, the income tax growth increased from 8.2% in FY16 to 26.8% in FY17 and 21.0% in FY18. The corporate tax growth in the corresponding years were 5.7%, 7.0% and 16.3% respectively.

Demonetisation effect? Direct tax collection rises dramatically after 2016; here's proof in 1 chartCourtesy: Crisil

“The Indian economy has long been marked by poor tax compliance, especially given a large informal segment. But this is starting to change, given some notable moves from the Modi government,” the report stated.

On GST front, the latest tax data suggests improvement in GST collections as short-term disruptions seem to be easing after some changes introduced by the GST Council to simplify the process. For the first time, the GST collection in the month of April surpassed a whopping Rs 1 lakh crore mark. However, experts said that the government needs better taxpayer numbers to meet its FY19 target. The compliance showed a little improvement in the month of March as it increased to 69.5% until April 30.

Direct tax collection up — courtesy indirect tax reform

The surge in the direct tax collection could also be attributed to the implementation of the Goods and Services Tax. Between April 2017 and February 2018, the net corporate tax collections surged 19.7% while the personal income tax collection swelled by 18.6%. While some of the growth in tax collections may be attributed to the growth in the economy and rising compliance, it is also as a result of the implementation of GST.

GST might have played a big role in the direct tax collection by putting a check on tax evasion, Naveen Wadhwa, DGM, Taxmann, told FE Online. Moreover, in a post-Budget interaction, Finance Minister Arun Jaitley explained the relation between the GST and direct tax collection. “The GST-direct tax relationship is a very curious one. Due to the GST, the volume of the business gets known, it adds impact to the direct tax side (in form of corporate tax),” Arun Jaitley said during an interaction in February.

What’s next?

While government’s efforts to expand the tax base is also one of the biggest reasons for high tax buoyancy, Jahangir Aziz of JP Morgan told CNBC-TV18 that what needs to be seen now is whether there is an “actual simplification of the direct tax code”. In November last year, the Narendra Modi government had formed a task force for the complete overhaul of the 50-year-old Income Tax Act.

It was touted as an attempt to perhaps an efforts to reinstate the Direct Tax Code (DTC) in a new avatar. While the task force was scheduled to submit its report this month, the Income Tax department last week informed that it has been given an extension of three months. India’s direct tax collection in the fiscal year 2017-18 stood at about Rs 10.03 lakh crore.

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