Tax collection to GDP ratio highest in 10 years! 4 reasons behind stunning numbers this year

By: | Updated: October 24, 2018 11:50 AM

The direct tax collection, which was higher-than-expected in the AY17-18, touched a 10-year high mark of 5.98%, making a strong case for the Narendra Modi government ahead of 2019 polls amid criticism for demonetisation. 

The Income Tax data, released on Monday, showed a 55% jump in average corporate tax collection from Rs 32.28 lakh in AY 2014-15 to Rs 49.95 lakh in AY 2017-18The Income Tax data, released on Monday, showed a 55% jump in average corporate tax collection from Rs 32.28 lakh in AY 2014-15 to Rs 49.95 lakh in AY 2017-18

The direct tax collection, which was higher-than-expected in the AY17-18, touched a 10-year high mark of 5.98%, making a strong case for the Narendra Modi government ahead of 2019 polls amid wide criticism against demonetisation.

The government had set the tone early on in its administration that it will be pushing for a widened tax base. In 2017, Finance Minister Arun Jaitley had said that India had had “become largely a tax non-compliant society”, while subsequently pushing for several reforms — big and small — to encourage more people to pay taxes.

Tax experts attribute the trend to four major factors including some nudge from demonetisation as well. SP Singh, Partner at Deloitte India said, “Effect of demonetisation, proper use of digitally collected information by the tax department, fewer cases of scrutiny, and ease of refunds may be the top four reasons from higher tax collections.”

The Income Tax data, released on Monday, showed a 55% jump in average corporate tax collection from Rs 32.28 lakh in AY 2014-15 to Rs 49.95 lakh in AY 2017-18, while in the individual tax category, the jump was 26% from an average of Rs 46,377 in AY 2014-15 to Rs 58,576 in AY 2017-18.

Also Read – Does EPFO data mean job creation? Surjit Bhalla, Arvind Virmani, Soumya Kanti Ghosh debate on Twitter

While direct tax collection to GDP ratio at about 6% is good news, it is still lower than ASEAN countries, another tax expert pointed out. “Indonesia, for example, has 11.8% tax collection to GDP ratio. On the widening of taxpayers, we are still below a general estimate that taxpayers’ base should be about 10 lakhs,” Sanjay Kumar, Senior Director, Deloitte India told FE Online.

After implementing the Goods and Services Tax (GST) last year, the government was hoping to bring reforms in the Direct Tax as well. A task force was formed in November 2017 to study the half-a-decade-old Income Tax Law and suggest changes to make it taxpayer-friendly. However, the report by the tax force, headed by top taxman Arbind Modi, presently hangs in balance.

A joint report by the World Bank and PwC, earlier this year, had said that the time to comply with corporate income tax almost halved following a number of reforms such as Income Computation and Disclosure Standards (ICDS).

“The time to comply with the corporate income tax has reduced from 45 hours in 2015 to 25 hours per annum in 2016,” the report had said. Additions such as implementation or enhancement of electronic filing, an automated gathering, fewer payments etc helped in widening the tax base as well. Read full story

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition