Demonetisation dented direct tax mop-up growth?

The number of income tax assessees, according to Arun Jaitley, may have nearly doubled but to assume the same has led to a proportional surge in direct tax collections might be misleading.

Published: 09th November 2018 06:44 AM  |   Last Updated: 09th November 2018 08:48 AM   |  A+A-

Demonetisation

People queue up outside ATMs in New Delhi to withdraw cash. (File| EPS/shekhar yadav)

Express News Service

HYDERABAD: Two years after demonetisation, the government on Thursday declared increase in tax collections as one of its key successes. But there is more to it than what meets the eye. While the government is taking a breezier view on the outcome of the currency reform, in reality, growth in tax collections is yet to catch up with pre-demo and pre-financial crisis periods.

For instance, total direct tax collections saw an enviable year-on-year growth during pre-crisis years, when direct taxes grew 24 per cent and 39 per cent in FY06 and FY07, respectively. In this backdrop, FY18’s provisional growth estimate of 18 per cent simply pales in comparison. Similarly, personal tax collections during FY18 are pegged at 20 per cent over FY17, but this is just half the growth rate seen in FY08 when they grew by a mighty 41 per cent!

Ditto with corporate taxes, which shot up 42.5 per cent during FY07, making FY18’s projected 18 per cent growth a weaker sibling. Lastly, the contribution of direct taxes (which includes corporate, personal and other taxes) to total tax collections is yet to regain its past glory of 56 per cent registered prior to note ban years (FY18 projected at 52 per cent). This, however, may not be a dampener considering the wider tax base and collections.

The number of income tax assessees, according to Finance Minister Arun Jaitley, may have nearly doubled from 3.8 crore in May 2014 to 6.86 crore now but to assume the same has led to a proportional surge in direct tax collections might be misleading.

Tax revenue took a knock following the global financial crisis, with personal tax collections even witnessing a decline of 0.3 per cent in FY09, but soon were on a climb in the following years when growth touched 18-20 per cent during FY13 and FY14.

Thanks to demo, growth fell to a seven-year low of 8.2 per cent in FY16. Similarly, corporate tax collection growth fell to a 10-year low of 5.6 per cent in FY16, which was lower than the 10.2 per cent growth in the financial crisis period of FY09, implying the financial harm caused by demo.

 

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