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Onus on centre to resurrect growth

Direct tax collections shot up 17.5 per cent to Rs 2.24 lakh crore in the first five months of this fiscal.

Published: 15th September 2017 04:00 AM  |   Last Updated: 15th September 2017 02:15 AM   |  A+A-

Direct tax collections shot up 17.5 per cent to Rs 2.24 lakh crore in the first five months of this fiscal. The overall tax base also grew 25 per cent, which Finance Minister Arun Jaitley attributed to demonetisation. Critics, however, believe this is a classic case of one swallow not making a summer. For, the net growth in personal tax collections was 16.5 per cent, lower than last fiscal’s 31.76 per cent. According to the Economic Survey, all the increase cannot be due to demonetisation, because there’s a natural trend of increase in new taxpayers every year.

Lastly, individuals’ e-returns rose to 2.79 crore in the past five months as against 2.23 crore the previous year. But the average income of new taxpayers was Rs 2.7 lakh, not far above the tax threshold of Rs 2.5 lakh. It means the immediate impact on tax collections was muted, thus making demonetisation a sledgehammer to crack a nut.

Tax collections are crucial for the Centre, whose fiscal position ‘deteriorated’ in the first quarter, according to the RBI. This was due to lower revenues and higher expenditure, which the government front-loaded before the onset of monsoon.

Direct tax revenue decelerated sharply in the first quarter; the indirect taxes transition to GST is likely to affect revenue collections temporarily, but for how many quarters is unclear. States have a weak track record of fiscal marksmanship and their gross fiscal deficit-GDP ratio may worsen as they have to implement state pay commission recommendations and give farm loan waivers.

Economists did factor in that demonetisation and GST would drag GDP growth down, but when its impact spilled over to the second quarter, the reactions ranged from bafflement to outrage. Going by falling exports, the slack in industrial output, muted consumer spending, job losses in the formal and informal sectors, lacklustre private investment, the onus is squarely on the Centre to push public expenditure to resurrect growth. Else, demonetisation and to an extent GST, do not make a watertight case to aid growth as it appeared at first sight.



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