Direct tax mop-up crosses half of Budget Estimates at halfway point

Collection 28% higher over the same period in 2019-20, brightening economic recovery prospects

The Centre’s direct tax collection after refunds crossed half the FY22 Budget Estimates by September 16, posting 73 per cent growth year-on-year on the back of a robust advance tax mop-up for the second quarter and a lower refund outgo.

The better-than-expected revenue mop-up was also higher by 28 per cent over the same period in 2019-20, brightening economic recovery prospects after the second Covid-19 wave, which disrupted economic activities in the first quarter.

The mop-up stood at Rs 5.66 trillion against Rs 3.28 trillion last year after the second instalment of advance tax was paid.

The Budget Estimates for the current financial year stand at Rs 11.08 trillion. The collection stood at Rs 4.4 trillion during the corresponding period of 2019-20, the pre-Covid year.

Collection before refunds stood at Rs 6.4 trillion, up 47 per cent against that of last year but 18 per cent lower than in 2019-20. Refunds at Rs 74,000 crore were against last year’s Rs 1.06 trillion and Rs 1.01 trillion in 2019-20.

Devendra Kumar Pant, chief economist, India Ratings, said the FY22 Budget proposals regarding tax collection were realistic after many years. “Even after the Budget presentation, our analysis suggested that the government will be able to meet its revenue receipt forecast. It is only disinvestment and expenditure which will lead to fiscal slippage,” Pant said.

“Tax collection performance in FY22 compared to FY20 is commendable…While growth in direct tax collection suggests that the economic recovery is getting stronger, some sectors are still in trouble. It will be too early to infer that the economy is out of trouble,” he added.

Aditi Nayar, chief economist at ICRA, said the considerable increase in direct tax collection was at odds with non-agricultural GVA (gross value added) in Q1 FY2022 relative to Q1 FY2020, both in real and nominal terms. “The formal/tax-paying portion of the non-agri economy has gained market share at the cost of the balance, benefitting from the structural shifts generated by demonetisation, GST as well as the Covid shock," said Nayar.

Direct taxes comprise income tax and corporation tax. Corporation tax collection stood at Rs 3.01 trillion, 82 per cent higher than last year’s Rs 1.65 trillion. It is also 26 per cent higher than in 2019-20.

Personal income tax collection at Rs 2.52 trillion is 63 per cent higher than last year’s Rs 1.55 trillion and 5.88 per cent higher than the Rs 2.38 trillion in 2019-20.

The share of corporation tax in direct tax collection was back to the 2019-20 levels of 53 per cent after falling to 50 per cent last year. Mumbai recorded the highest collection at Rs 1.92 trillion, showing a growth rate of 76 per cent over last year.

Bengaluru, Delhi, and Chennai posted growth of 52 per cent, 63 per cent, and 75 per cent, respectively. Last year, the direct tax mop-up at Rs 9.47 trillion was 9.7 per cent lower than in the previous year due to the impact of the pandemic, but exceeded the revised estimates, which stood at Rs 9.05 trillion.

Officials have attributed the robust mop-up to a better economic outlook this fiscal year and increased compliance and enforcement due to the sharing of the goods and services tax data with the Central Board of Direct Taxes (CBDT).

Advance tax collection in the first quarter grew 1.5 times over last year’s.

Advance tax is paid as and when the money is earned in four instalments rather than at the end of the fiscal year. It is considered an indication of economic sentiment. The first instalment, or 15 per cent of advance tax, is to be paid by June 15, the second by September 15 (30 per cent), third by December 15 (30 per cent), and the rest by March 15.

Experts, however, pointed at the healthy exports trend and cost-cutting by companies to explain the surge in direct taxes. India’s merchandise exports in August this year grew 45.17 per cent at $33.14 billion over the same month last year and by 67 per cent in the April-August period at $163.67 billion.