Sharp rise in government's direct tax collections

An insight into the way tax collections are moving

 Sharp rise in government's direct tax collections

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• The story: Government of India collected a far higher amount of direct taxes in April-August 2021 period, as compared to the pre-pandemic phase. It claims the collections reflect a recovering economy.
• GTR facts: The gross tax revenues (GTR) were up 47% y-o-y, to Rs.6.45 lakh crore. The net tax revenues (NTR) rose 74% to Rs.5.7 lakh crores.

1. Compared to 2019-20, the GTR and NTR were up 16.8% and 27%, resp.
2. Most sectors showed a growth in tax payments (manufacturing, mining, stell, pharma, financials)

• Huge rise in advance tax payments: People pay their advance taxes to the government, that was 65% up at Rs.2.53 lakh crores. Refunds are being made expeditiously too, and amounted Rs.75111 crores.

1. Advance tax collection up 52% in Sept quarter
2. Current collection 14.6% higher than the 2019-20 level of Rs 2.21 trillion
3. Advance tax collection during the second quarter of the fiscal year grew over 50 per cent over the equivalent period in 2020-21, providing the government with additional spending power to fuel economic recovery after the disruption caused by the second Covid-19 wave earlier this year.
4. Of the advance tax in the first half of the fiscal year, corporation tax accounted for Rs 1.96 trillion and personal income tax Rs 56,389 crore.
5. Advance tax is paid as and when the money is earned in four instalments rather at the end of the fiscal year. It is considered an indication of economic sentiment. The first instalment, or 15 per cent of advance tax, is to be paid by June 15, the second by September 15 (30 per cent), the third by December 15 (30 per cent), and the rest by March 15.

• Formal gained at the cost of informal: The sharp jump in direct tax collection has benefited from the formalisation of the Indian economy, which was already underway, but has been accelerated by the pandemic. The formal/tax-paying portion of the non-agricultural economy has gained market share at the cost of the balance, benefiting from the structural shifts generated by demonetisation, goods and services tax, as well as the Covid shock. This suggests the upturn will sustain in the second half as well, even though a normalising base may dampen the pace of growth. But the implications of this was jobs and employment are dire, as clearly, the big are getting bigger (and paying more taxes) while the small are getting crushed.
• Indirect taxes: The total receipts - including customs, central excise and CGST - were up 44% in April-August 2021 from one year ago, and 29% from two years ago (pre-pandemic fiscal). This shows a direct impact of formal sector gaining ground, at the cost of the MSMEs and informal.
• EXAM QUESTIONS: (1) Explain the meaning and significance of sharply rising tax collections, in the recovery phase of Indian economy. (2) It is claimed that formal sector gained at the cost of informal, over the past few years. What are the implications for Indian society?

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#Formal #grosstaxrevenues #nettaxrevenues #CBDT #informal

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