The impact of the slump in the Indian economy gives the latest blow and affects the budget net direct tax target in the first five and a half months of 2019-20 fiscal year. In fact, it has collected only 4.7% of the 17.5% full-year target until now.
The central government was indeed being very optimistic while introducing the budget this year. It planned a target of collecting a direct tax of 17.5% for the 2019-20 fiscal year amounting to ₹13.35 lakh crore. But now the current circumstances are showing that India is, in fact, under a massive tax deficit.
However, the government has only succeeded in mopping-up 4.7% (₹4.4 lakh crore) from 1st April to 15th September
Now, the government has to double the amount for the remaining six and a half months to meet the estimated budget of collecting ₹13.35 lakh crore. The government should be more concerned about India’s tax deficit.
However, India has been following a four-installment period for advance tax payments where the companies need to pay 45% of their tax liability by 15th September. If we calculate the estimated target proposed by the government earlier in this fiscal year, we are currently short of ₹1.60 lakh crore!
Direct Tax – India’s Old Faithful
India’s total tax collection till 15th September has minimally edged past those from the same period of the previous year creating a tax deficit.
India’s total tax collection till date stands at ₹5.5 lakh crore against ₹5.25 lakh crore of last year for the same period. Similarly, net tax collection stands at ₹4.5 lakh crore against ₹4.25 lakh crore and advance tax collection at ₹2.2 lakh crore against ₹2.05 lakh crore last year.
Even if we look at the last fiscal year target (2018-19) data, the government was only able to collect 85% of ₹12 lakh crore of direct tax (that amounts to ₹10,21,251 crore).
Centre Board of Direct Taxes (CBDT) showed its concerns and asked its officials to pay immediate attention and take needed action to shore up revenues.
GST – Tax Tantrums
GST collections have been proven to be somewhat stagnant. And the total tax collection is now posing a challenge to the government despite the fact that the government seems very keen on maintaining the fiscal deficit (budgeted within 3.3% of GDP).
In the fiscal year 2018-19, GST collection budgeted to be around ₹13.71 lakh crore. But the goverment was able to collect only ₹11.47 lakh crore.
However, comparing the GST collection of this fiscal year to the previous one from April to August shows an upward steep.
In 2018, World Bank described India’s GST as too complex. Moreover, it noticed various flaws when compared to other countries. Additionally, the World Bank stated that India has the second-highest tax rate, i.e., 28% among the survey conducted in 115 countries.
Many Indian businessmen alleged that GST implementation is flawed as they are still facing problems mostly in tax refund delays. Moreover, the four different slab rates make GST implementation more complex.
Tax-terrorism in UPA rule became Tax-Jihadism in NDA rule
The term “Tax terrorism” was first coined and used by PM Modi while countering the UPA government. He said, tax terrorism prevailing in the country is a dangerous situation, and the government cannot run the government thinking everyone is a thief.
PM Modi: GST will end tax-terrorism
Tax-terrorism is when the government applies tax laws harshly, refusing to give tax benefits or refund the excess tax, putting unnecessary litigations.
M R Venkatesh, a Chartered Accountant, advocate and a renowned commentator on economic policies, international trade and business strategies in an interview to Rediff termed the Modi era as “Tax-Jihadism”.
He explained that the Modi government empowered the income tax department, GST department, custom department but with no accountability. Moreover, the problem nowadays is that tax revenue collections have become pretty aggressive as the government is spending recklessly. This, in turn, is leading to India’s fiscal deficit.
No returns and a reeling economy
Fiscal deficit plays a vital role when calculating the spending of the government against its income. In other words, it is a shortfall in the government’s revenue compared to its expense.
The government estimated the fiscal deficit of the current fiscal year to be ₹7,03,760 crore. But the fiscal deficit has crossed 77% (₹5,47,605 crore) of its estimation in July itself!
Total expenditure until July was ₹9,47,278 crore compared to the fiscal target estimated by the government, i.e., ₹27,86,349 crore.
Total receipts till July stood at ₹3,99,673 crore against the fiscal target of ₹20,82,589.
On top of this, the recent drone attack on Saudi Arabia’s Aramco oil facilities will have a huge impact on India’s Oil prices as Saudi Arabia is the second-largest crude oil supplier to India. The hike in oil prices could further hit the current account and fiscal deficit of India.
The current Indian tax laws have been more oriented towards increasing government revenues by imposing more taxes and increasing tax assessments, rather than focusing on what a taxpayer really needs. In fact, higher tax imposition makes the investors hesitant before investing in any business. Added to all this, the recent slump in automobile, agriculture, real estate sectors has been proving to be very perilous and might be leading India to an economic recession.
FM’s New Booster: Corporate Tax Cut
On the 20th of September, Finance Minister Nirmala Sitharaman, while addressing a press conference in Goa before GST council meet announced some relief measures.
A cut in corporate tax rates for domestic companies from 30% to 22%. Similarly, for new manufacturing companies a tax reduction from 22% to 15%. Moreover, MAT (Minimum Alternative Tax) would not be imposed on the above type of companies.
Also adding a relief measure by reducing the MAT from 18.5% to 15 for the companies which still enjoys incentives or exemptions by the government. The FM added the revenue foregone on reduction in corporate tax, and other relief measures will be ₹1.45 lakh crore annually.
Following the announcement, the BSE Sensex took a flight reaching 1921.15 points, and NIFTY rose 569 points. The move is expected to lower WACC (Weighted Average Cost of Capital) and increase liquidity in the market. This will lead to higher spending thus causing higher capital formation and perhaps decrease in tax evasion.
Moreover, this announcement made by the finance minister to tackle the economic slowdown provides an impetus to the Indian economy. What’s expected is a boost in foreign investment as well as the private investment that will create more jobs in the country.
However, apart from the impetus to a trickling Indian economy, the move further increases tax deficit and fiscal deficit. Thus, it remains to be seen how the government will tackle this factor, which is significant for a stable and flourishing economy.