The tax department has released the data on the source-wise collection of income tax and corporate taxes for the assessment year 2018-19, which pertains to direct tax revenue collected on incomes earned in the financial year 2017-18. It offers some interesting insights.
Direct taxes, as a share of total tax revenue, rose to 55 per cent, close to its average level in the last few years (Chart 1). This ratio had declined for a brief period due to a higher collection from excise duties on petrol and diesel. More and more direct tax is now deducted directly from the income account of the individual (Chart 2). Advance tax collection has settled at a lower normal of 40 per cent.
The share of direct taxes as a share of the economy is now at an 11-year high of 6 per cent (Chart 3).
The rise in part is also due to slower indirect tax collections, especially the goods and services tax (GST). Buoyancy in direct taxes has remained above one for three year now (Chart 4), or in simple terms, taxes grew 1.21 times faster than GDP in 2018-19, and 1.59 times in 2017-18.
But more importantly, income tax returns (I-T returns) that declared incomes below Rs 2.5 lakh per year grew for the first time in many years in 2017-18 (Chart 5). Number, as well as incomes declared in the bracket below this level, was reducing till 2016-17.
But in 2017-18, average income among a group of individuals earning less than Rs 2.5 lakh per year, rose 8 per cent, after consistently contracting for at least three years (Chart 6). Yet, average incomes among all individuals filing I-T return rose at 2.4 per cent, the slowest pace in the past four years (Chart 7).
Drastically lower nominal growth at 8 per cent in the first quarter of 2019-20 now pose a serious threat to growth in government’s revenue through income taxes.