Direct tax collection sees dismal growth; mid-August mop-up growth under 5%

Marred by an economic slowdown, direct tax collections have seen dismal growth so far in the current fiscal year, with the mop-up growing by under 5 per cent till mid-August. 

With glaring signs of a slowdown visible across the consumer durables and non-durables segments, tax officials appear underconfident of achieving the growth target of 17.3 per cent set for 2019-20 in the Budget, presented last month. 

Till August, direct tax mop-up grew by just 4.69 per cent, net of refunds, and 5.69 per cent on a gross basis. Refunds grew by 8 per cent during this period. 

The government is expecting a tax buoyancy rate of 1.2, which means that if the economy expands by 10 per cent in nominal terms, the tax collection will grow by 12 per cent. 

The Budget has projected growth of 12 per cent in GDP at current prices. “Broad sentiment suggests that the actual economic growth may be lower, between 10 per cent and 11 per cent. This will mean that the direct tax collection will be somewhere around 12-13 per cent," said a senior government official. 

Despite a Rs 45,000 crore reduction in the direct tax collection target in the final Budget for 2019-20 compared to the interim one, the goal is far from being realistic, officials argue. 

"Tax targets should be in line with realities of the economy. There is no point missing targets every year, " an official said. 

Direct taxes have two broad components — corporation tax and personal income tax. The Central Board of Direct Taxes (CBDT) has been given a collection target of Rs 5.69 trillion in personal income tax, which is a growth rate of 19.2 per cent over the previous year's. The only year when the collection growth was higher than this was in 2016-17, the year of demonetisation and income declaration scheme, when the mop-up grew by 26 per cent. 

The collections had shot up that year because people regularised their unaccounted income by paying higher levies.

With economic slowdown impacting jobs this year, achieving the desired growth may be tougher than earlier years. 

After a phenomenal growth in 2016-17 due to demonetisation, personal income tax rose by 18 per cent in 2017-18. Even corporation tax collection may be a challenge this financial year, unlike last year, due to falling profits. 

Besides, the CBDT is yet to come up with a policy push to boost collections. "There are no video-conference meetings by the chairman like those used to take place earlier, nor are there any orders or encouragement as such from the top," said a field officer.