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  1. Direct tax collections surge, courtesy the biggest indirect tax reform — GST

Direct tax collections surge, courtesy the biggest indirect tax reform — GST

The government’s direct tax collection for the April-February period of the current financial year surged by 19.5% on-year to Rs 7.44 lakh crore, helped by buoyant corporate tax collections which rose more than personal income tax.

By: | Published: March 9, 2018 1:15 PM
The government’s direct tax collection for the April-February period of the current financial year surged by 19.5%

The government’s direct tax collection for the April-February period of the current financial year surged by 19.5% on-year to Rs 7.44 lakh crore, helped by buoyant corporate tax collections which rose more than personal income tax. However, one of the reasons behind the buoyancy in the direct corporate tax collections is India’s biggest indirect tax reform — GST (Goods and Services Tax).

According to latest government data, 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 economy and rising compliance, it is also as a result of 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, said. “GST registration is integrated with Income-tax PAN and it has impacted the modus-operandi in which a business transaction is carried out. Such linking of PAN with GST has significantly stopped the tax evasion which, in turn, might have boosted the direct tax revenue collections,” Naveen Wadhwa said.

Also Read: The curious relation between GST and direct tax: How lower rate led to higher corporate tax

Earlier, Finance Minister Arun Jaitley too had alluded to the ripple effect of GST on growing the direct corporate tax collections. At a post-Budget event earlier this year, Arun Jaitley said that there is a curious relationship between the GST and direct tax. According to Finance Ministry’s observation, a lot of businesses have become a part of the formal economic system under GST, which has led to an impact on direct corporate taxes as well.

Moreover, massive rate rationalisation under the GST in past few months also led to an increase in the profitability of some companies, thus, increasing the amount of corporate tax. “… as the rationalisation happened in that (October-December) quarter, the corporate tax which was lagging behind suddenly moved up,” Arun Jaitley had said.

Meanwhile, few other factors helped too. The growth rate of direct tax collection “may be attributed not only to the economic growth but also the improving tax compliance and the rigorous collection approach adopted by the revenue department”, Gopal Bohra, Partner, NA Shah Associates said.

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