Reality check! Stellar growth in income tax e-returns, but not in the taxpayer base

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Published: February 25, 2019 5:46:31 AM

The growth trajectory in direct tax collection closely resembles the growth in effective taxpayer base, rather than the number of returns.

The highest growth in direct tax collection in the last five years was 18.6% witnessed in FY18, helped by the proceeds from income disclosure schemes.

The stellar growth in income-tax e-returns filing by all categories of taxpayers over the last four years indicates higher compliance but not as much a widening of the tax base. The effective taxpayer base — which includes those who pay taxes but don’t file returns — has seen a slower growth compared with e-returns filing.

While the number of e-returns filed between assessment year (AY) 2013-14 to AY 2017-18 grew by an average 25% per year, the effective taxpayer base expanded by an average of 9% only, registering double-digit growth rates in only two of these years (see chart).


The Narendra Modi government has often highlighted the recent years’ sharp increase in the number of e-returns as a sign of rapid expansion of the tax base and attributed the trend to demonetisation and greater efficiency of the tax administration.

However, the high growth in e-returns filings has been mainly due to more of existing taxpayers filing returns rather than an increase in the number of new taxpayers. In AY 2013-14, just over 56% of those who paid taxes filed returns; this has grown to over 91% in AY 2017-18.

Also, the average tax paid by each entity/person in the effective taxpayer base has been between Rs 1-1.1 lakh between FY 12-13 to FY 16-17 while the same amongst returns filed has seen a drastic fall to Rs 1.22 lakh from Rs 1.88 lakh.

The growth trajectory in direct tax collection closely resembles the growth in effective taxpayer base, rather than the number of returns.

The highest growth in direct tax collection in the last five years was 18.6% witnessed in FY18, helped by the proceeds from income disclosure schemes. The collection growth was much lower in FY15 (8.1%) and in FY16 (6.9%), even as the e-returns growth was robust at around 20%.

The tepid growth in effective taxpayer base is also threatening the government’s mop-up target for the current fiscal which according to the revised estimate is pegged at Rs 12 lakh crore, 20% higher than the last fiscal.

As FE reported earlier, if the historical mop-up trend serves any guidance, some 65% of the annual direct taxes get collected in the first nine months of a fiscal and the balance in the fourth quarter. That means the personal income tax (PIT) collections in Q4FY19 could be Rs 1,85,150 crore, some Rs 52,000 crore less than what the revised estimate requires. Similarly, the corporation tax (CIT) may witness a shortfall of Rs 13,000 crore against the RE.

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