Tax mop-up from metros sees double-digit decline; Kolkata worst-hit city

Numbers pose challenges to Centre's Rs 13.2-trn target

Direct tax collections are likely to remain muted in the second consecutive quarter of the current fiscal year with most top Indian cities witnessing double-digit contraction in receipts till August 20.

Kolkata emerged the worst-affected metro city, reporting a drop of 60 per cent in the mop up during April-August 20. It was followed by Chennai and Delhi, which saw decline by 41 per cent and 36 per cent, respectively.

Mumbai was, however, one of the least-affected regions, though collection was down there too. Mumbai, which has the highest share of 34 per cent in overall direct tax collections, witnessed a drop by 13 per cent, despite accounting for an ever-growing share of total Covid-19 cases.

Bengaluru is the only metro city showing growth of 10 per cent at Rs 30,777 crore. This is followed by Guhawati, which also reported an increase in collection by 4.7 per cent at Rs 1,212 crore compared to Rs 1,158 crore during the same period a year ago.

As of August 20, the total net direct tax collections showed a drop of 26.3 per cent at Rs 1.89 trillion against Rs 2.56 trillion a year ago. The downward trend is likely to continue in the September quarter too, which is a cause for concern, said an official. In the first quarter (April-June), direct tax mop up fell 25.3 per cent to Rs 1.25 trillion.

Other tier-1 cities such as Hyderabad, Pune, Chandigarh, and Ahmedabad also saw a massive drop of 30-45 per cent in tax receipts till August 20 this year.  

Even corporate tax mop up till August 20 from major cities did not see much improvement. For instance, Mumbai collected Rs 25,611 crore, followed by Bengaluru, which reported Rs 12,521 crore and Delhi was at Rs 7,989 crore.

These numbers continue to pose serious challenges for the government, as the ministry aims to achieve Rs 13.2 trillion direct tax collections this fiscal year. Experts say green shoots are visible but the economy is still limping and it will take a few more quarters to be back on track.

“Corporate tax collections are based on the estimated profits of the taxpayers and also on the businesses performance, which is directly proportional to the economic activity in the present circumstances. Long lockdown has impacted most businesses; advance tax collections will improve with businesses gradually coming back on track. It may take a while before one sees big improvement in advance tax collections,” said Sanjay Sanghvi, partner, Khaitan & Company.

However, the government expects collection figures to improve as the first quarter’s low numbers could not be a benchmark for the trend to continue throughout the year.

But industry players are not convinced as they believe that reduction in advance tax/corporate tax indicates stress in business and liquidity issues.

In the previous fiscal year, direct tax mop up had slumped after 20 years, owing to the economic slowdown and impact of the coronavirus pandemic. The government had collected Rs 1.42 tillion less from the downward revised target at Rs 10.27 trillion. For the current fiscal year, the Central Board of Direct Taxes has communicated the region-wise break-up of targets. For this fiscal year, the government had set a target of Rs 6.81 trillion from corporate tax and Rs 6.38 trillion from income tax, including security transaction tax.