Fall in direct tax collection on expected lines and due to tax reforms, says government

Refuting media reports that the growth in direct tax collection for FY 2019-20 has fallen drastically, the Modi government today said that the fall in the collection of direct taxes is on expected lines and these reports are not true.

The Ministry of Finance in a statement said, “There are reports in a certain section of media that the growth of direct taxes collection for the FY 2019-20 has fallen drastically and buoyancy of the direct tax collection as compared to the GDP growth has reached negative. These reports do not portray the correct picture regarding the growth of direct taxes.”

It is a fact that the net direct tax collection for the FY 2019-20 was less than the net direct tax collection for the FY 2018-19. However, this fall in the collection of direct taxes is on expected lines and is temporary in nature due to the historic tax reforms undertaken and much higher refunds issued during the FY 2019-20.

“This fact becomes more apparent if we compare the gross collection (which removes anomalies created by the variation in the amount of refund given in a year) after taking into account the revenue foregone estimated for the bold tax reforms undertaken, which have a direct impact on the direct taxes collection for FY 2019-20. It may also be noted that in FY 2019-20, amount of total refunds given was Rs 1.84 lakh crore as compared to Rs 1.61 lakh crore in FY 2018-19, which is a 14% increase year-on-year,” it said.

The various tax reforms undertaken by the government included reduction in corporate tax rate for all existing domestic companies, incentive for new manufacturing domestic companies, and reduction in MAT rate.

Another tax reform was exemption from income tax to individuals earning income up to Rs 5 lakh and increase in standard deduction. In fact, to provide complete relief from payment of income tax to individuals earning taxable income up to Rs 5 lakh, the Finance Act, 2019 exempted an individual taxpayer with taxable income up to Rs 5 lakh by providing 100% tax rebate. Also, to provide relief to the salaried taxpayers, the Finance Act, 2019 enhanced the standard deduction from Rs 40,000 to Rs 50,000.

“The revenue impact of these reforms have been estimated at Rs 1.45 lakh crore for Corporate Tax and at Rs 23,200 crore for the Personal Income Tax (PIT),” the Ministry said.

It further informed that by removing the effect of the extraordinary and historic tax reform measures and higher issuance of refunds during the FY 2019-20, the buoyancy of total gross direct tax collection comes to 1.12 and almost 1 for Corporate Tax and 1.32 for Personal Income Tax. “These buoyancies indicate that the growth trajectories of both the arms of direct taxes, i.e., Corporate Tax and PIT, are intact and are rising steadily. Further, the higher growth rate in direct taxes as compared to growth rate in the GDP even in these challenging times proves that recent efforts for the widening of the tax base undertaken by the government are yielding results.”

Also, the assertion that in spite of the tax reforms, investment has not been picking up is not correct and is without appreciation of the reality of the business world. “The tax reforms were announced in September, 2019 and the results are expected to be visible in the next few months and in years to come. The outbreak of COVID-19 may further delay this process, but the growth in production due to these tax reforms is bound to happen and cannot be stopped,” it said.

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