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

By: |
Published: February 6, 2018 3:05:12 PM

As direct tax collection soared up 18% to Rs 6.56 lakh crore in the first nine months of the fiscal year 2017-2018, which the government said is "well ahead of its Budgeted target" of Rs 9.8 lakh crore for full year, Finance Minister Arun Jaitley explained the curious relationship between the GST and the direct tax.

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

As direct tax collection soared up 18% to Rs 6.56 lakh crore in the first nine months of the fiscal year 2017-2018, which the government said is “well ahead of its Budgeted target” of Rs 9.8 lakh crore for full year, Finance Minister Arun Jaitley explained the curious relationship between the Goods and Services Tax (GST) and the direct taxes. During an interactive session at FICCI, the finance minister said that the GST has a direct impact on income tax.

“The GST-direct tax relationship is a very curious one. Because of the GST, there is a direct impact on the income tax side also. Due to the GST, the volume of the business gets known, it adds impact to the direct tax side,” Arun Jaitley said. “The rationalising of the GST tariffs, also increase the profitability of some companies; and as the rationalisation happened in that (October-December) quarter, the corporate tax which was lagging behind suddenly moved up.”

“So if the companies benefitted from the GST rationalisation, it also impacted their profits and therefore the corporate taxes have gone up. That’s why, we are running ahead of the direct taxation targets,” he added. Direct taxes include the personal income tax paid by individuals, the corporate tax, and the wealth tax.

On the issue of indirect tax compliance, Arun Jaitley said that the GST has settled down and when anti-tax evasion measures are in place, the collections will improve. He said that the number of taxpayers registered under the GST has increased from 64,000 to 1 crore.

On the issue of fiscal slippage, he said that the 0.3 percentage point of fiscal slippage from the targeted 3.2% of the GDP in the current fiscal year to 3.5% is statistical in character. Arun Jaitley said that under the new indirect tax regime, the accounting process changed, and the government had to calculate 12 months of expenditure and only 11 months of revenue under the GST. In the previous regime, the VAT and the excise duty were paid in the same month, while under the GST the taxes are paid by the 20th of the next month.

“The missing Rs 36,000 crore form some significant part of the 0.3 percentage point of fiscal slippage. By next year, the tax buoyancy will be simpler, higher to meet the targets,” Arun Jaitley said. The GST Council, headed by Arun Jaitley, has reduced rates on over 200 goods and 50 services since November from the highest tax bracket of 28% to lower tax brackets. The aim is to limit the 28% tax rate only for sin or demerit goods in future.

The GST Collections, after falling in the month of October and November, reversed the trend in December and rose to Rs 86,703 crore as of January 24. In November, it was Rs 80,808 crore, in October Rs Rs 83,000 crore, in September Rs 92,000 crore, in August Rs 90,669 crore and in July Rs 94,063 crore.

Do you know What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Next Stories
1Realty, gas in GST before auto fuels: Finance Minister Arun Jaitley
2Why TRAI is asking users to give more info to get better data speed insight
3Wind Turbines: Over 3,000 MW capacity rots for want of servicing