The tax authorities are faced with a steep revenue collection target for 2019-20, with advance tax mop-up posting dismal growth in the first half of the financial year, indicating a deepening economic slowdown.
The overall advance tax collection, including corporate and personal income tax, grew by 6 per cent between April and mid-September as against 18 per cent in the year-ago period, according to sources in the know.
Direct tax collection has seen a growth rate of mere 5 per cent so far this year, which means that collections will need to expand by at least 27 per cent in the remaining half to achieve the Budget target of 17.3 per cent growth.
Advance tax collection after the second instalment stood at Rs 2.2 trillion. The gross direct tax collection has touched Rs 5.5 trillion as against the full-year target of Rs 13.35 trillion.
Within the advance tax collection, corporation tax mop-up grew by 6.5 per cent and personal income tax by 3.5 per cent.
“The revenue situation remains grim on account of the economy expanding slower than expected and key industries being impacted. If the situation does not improve, meeting the collection target will be impossible,” said a government official.
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India’s gross domestic product (GDP) growth plummeted to a 25-quarter low of 5 per cent in the first quarter of FY20.
The tax buoyancy estimated this year at 1.44 is higher than 1.21 achieved last year. In simple terms, it means if nominal GDP expands by 10 per cent, direct tax collection will grow by 14.4 per cent, which appears near impossible in the current situation. Nominal GDP grew by just 8 per cent in the first quarter as against 12 per cent budgeted for FY20. Several institutions, including the International Monetary Fund (IMF) and the Reserve Bank of India (RBI), have cut India’s growth forecast.
“Broad sentiment suggests that the actual economic growth may be lower, somewhere around 10 per cent. This will mean the direct tax collection will be somewhere around 12-13 per cent,” said another official.
About 45 per cent of the direct tax revenue collection comes from advance tax, 35 per cent from TDS (tax deduction at source), 10 per cent from self-assessment, and 10 per cent from recovery. Advance tax means paying tax as and when the money is earned, rather than waiting for the end of the fiscal year.
Advance tax growth so far into the fiscal is the lowest in at least four years. The growth rate was 18 per cent in 2018-19, 11 per cent in 2017-18, and 14 per cent in 2016-17 in the same period.
Despite a Rs 45,000 crore reduction in the direct tax collection target in the Budget, it is far from realistic, officials argue.
Tax officers are also finding signals from the finance minister confusing in her outreach programmes with officers across the country. In one of her meetings in Pune, she asked officers to observe a ‘bit of restraint’ and not to ‘overreach’ while going about tax collection, while also pointing out that the tax collection target was an easy one to achieve.
“While on the one hand we are being told to go easy on taxpayers, on the other hand we have been given a herculean target to achieve,” said a tax officer, adding that the worsening economic situation would make going further tough.