Govt faces first fall in direct taxes in 20 years: Report
Decline in demand stung businesses, forcing companies to cut investment and jobs, denting tax collections
Mumbai: India’s corporate and income tax collection for the current year is likely to fall for the first time in at least two decades, over half a dozen senior tax officials told Reuters, amid a sharp fall in economic growth and cut in corporate tax rates.
Prime Minister Narendra Modi’s government was targetting direct tax collection of Rs 13.5 lakh crore for the year ending March 31 – a 17 per cent increase over the prior fiscal year.
However, a sharp decline in demand has stung businesses, forcing companies to cut investment and jobs, denting tax collections and prompting the government to forecast 5 per cent growth for this fiscal year – the slowest in 11 years.
The tax department had managed to collect only Rs 7.3 lakh crore as of January 23, more than 5.5 per cent below the amount collected by the same point last year, said a senior tax official.
After collecting taxes from companies in advance for the first three quarters, officials typically garner about 30-35 per cent of annual direct taxes in the final three months, data from the past three years shows.
But eight senior tax officials interviewed by Reuters said despite their best efforts direct tax collections this financial year were likely to fall below the Rs 11.5 lakh crore collected in 2018-19.
“Forget the target. This will be the first time that we’ll see a fall in direct tax collection ever,” said a tax official in New Delhi.
He estimates that direct tax collections for this year could end up roughly 10 per cent below fiscal 2019.
Direct taxes typically account for about 80 per cent of the government’s projections for annual revenue, and the shortfall may leave the government needing to boost borrowing to meet expenditure commitments.
The tax officials also say that a surprise cut in headline corporate tax rate last year aimed at wooing manufacturers and boosting investment in Asia’s third-biggest economy is another key reason behind the sluggish tax collections. “We’ll be very happy if we can even breakeven with what we collected last year,” said another senior tax official in the financial capital Mumbai, the biggest tax generator, accounting for about a third of revenues from direct taxes. “But given the state of the economy, I’m not too hopeful.”
India slowdown temporary, expect momentum: Kristalina Georgieva
Davos: IMF chief Kristalina Georgieva on Friday said growth slowdown in India appears to be temporary and she expects the momentum to improve going ahead.
Speaking at Davos in Switzerland at the World Economic Forum 2020, she also said the world appears a better place in January 2020 compared to what it was when IMF announced its World Economic Outlook in October 2019.
She said the factors driving this positive momentum include receding trade tension after the US-China first phase trade deal and synchronised tax cuts, among others.
She, however, said a growth rate of 3.3 per cent is not fantastic for the world economy.
“It is still sluggish growth. We want fiscal policies to be more aggressive and we want structural reforms and more dynamism,” the managing director of the International Monetary Fund (IMF) said.
On emerging markets, she said they are also moving forward.
“We had a downgrade in one large market India but we believe that’s temporary. We expect momentum to improve further going ahead. There are also some bright spots like Indonesia and Vietnam,” she noted.
She further said a number of African countries are doing very well, but some other nations like Mexico are not.
On risks ahead for the global economy, the IMF chief listed factors like weakness in long-term productivity growth and low inflation.
“We are living in a more risk-prone world. It is only January and there have been events that are sparking risks for the global economy,” she added.