E-returns filed by individual taxpayers grew 70% annually to 5.4 crore in the April-August period of the current financial year.
E-returns filed by individual taxpayers grew 70% annually to 5.4 crore in the April-August period of the current financial year, but the average tax paid by them has come down by 32% to Rs 27,083. In the previous two years (FY18 and FY17), while the growth rate for e-filers for the respective April-August periods were 24% and 39% respectively, the average tax paid had declined marginally from about Rs 44,000 to nearly Rs 40,200 (see chart).
Even though first, demonetisation, and later, the goods and services tax (GST) helped add pace to tax base expansion, the rate of growth in personal income tax (PIT) collection hasn’t risen commensurately. (The number of individual taxpayers rose from 5.9 crore in FY16 to 7.8 crore in FY17 and, taking cue from available data, the figure could be close to 10 crore in FY18. PIT revenue growth, however, rose from 8.5% in FY16 to 29% and then fell to 19% in FY18).
The fact that the average income tax paid by individual taxpayers has come down indicates that mere inclusion of more assessees, who contribute little to the tax revenue, won’t immediately serve the purpose of improving the tax-GDP ratio.
Last week, finance minister Arun Jaitley had said the government was expecting the e-filings to touch 7.6 crore for the current fiscal year compared with 6.9 crore in the last financial year. At the end of
FY 14, only 3.8 e-returns had been filed.
However, experts said the government ought to investigate the reasons behind new filers paying very little or nil income tax. The direct tax collection net of refunds for the April-September period grew by 14% to Rs 4.44 lakh crore, marginally below the growth rate of 14.4% required to achieve the budget estimate of Rs 11.5 lakh crore for the current fiscal.
As FE reported earlier, the government is banking on robust direct tax collections to compensate for the estimated Rs 1-lakh-crore shortfall in GST mop-up in 2018-19.
A government official said while the April-July period is a good indicator of the average tax payment, the full year picture could be slightly different given a large number of filers entered the system for the first time after the implementation of the GST. He added that many filers who have had to make disclosures under GST may have reluctantly filed I-T returns for the first time but could still be hiding their actual incomes.
Experts said that even if the PIT ticket size comes down in the short-term, bringing more filers in the system would likely yield results in the coming years.
Personal income tax collections as a share of the nominal gross domestic product (GDP) had risen from 2.09% in FY16 to 2.43% in FY17, the year in which specified high-value bank notes were demonetised. If that itself was probably unprecedented or at least the highest in recent history (FE has reviewed the figures since FY01), in FY18 (GST was launched in July, 2017, quite early in the year), the ratio increased further to 2.63%.
Despite the relatively larger expansion in the tax base in FY18 than FY17, the growth in PIT revenue in FY18 (19%) was lower than that in FY17 (29%). This was because of the lower growth in GDP during the year and the fact that a large segment of the GST-induced new assessees don’t show taxable incomes. Also, those who deposited large amounts of cash in banks post-demonetisation in FY17 and the income disclosure schemes contributed to the spurt in tax collections in the year.