The current situation is a catastrophe for the income tax governance as the revenue collection target for 2019-20 is seeming beyond the reach. The first half of the financial year (April to mid-September) has ended with lower than expected growth in revenue collection, giving the signs of a severe economic slowdown.
The advance tax collection including corporate and individual income tax, the revenue hiked by 6% between April and mid-September against 18% a year ago.
So far this year, the Direct tax collection has witnessed a 5% hike which means that it still needs to bag 27% growth in the remaining half of the year in order to achieve the budget target of 17.3% growth by the end.
After the second instalment, the advance tax collection marked Rs. 2.2 trillion. The gross direct tax collection has managed to reach up to Rs 5.5 trillion but the full-year target remains of Rs 13.35 trillion.
While the advance tax collection witnessed a hike of 6.5% in revenue collection, the personal income tax grew up to 3.5%.
Growth in the revenue collection is lower than expected due to which key industries are being affected. If the scenario prevails for long, meeting the collection target would become impossible.
The country’s gross domestic product (GDP) growth fell to a 25-quarter low of 5 per cent in the first quarter of FY20.
If the country’s GDP shows a hike of 10% then the direct tax collection will grow by 14.4%, which seems impossible in the current scenario. So far this year, GDP witnessed a hike of 8% against the expected 12% hike for FY 19-20. Several key organizations like the International Monetary Fund (IMF) and the Reserve Bank of India (RBI) has cut India’s growth forecast.
In the Board’s opinion, the actual economic growth can become lower somewhere around 10%, which means the growth in direct tax collection may reach up to 12-13%.
45% of the direct tax revenue collection is extracted from advance taxes, rest 25% is from the TDS, 10% from self-assessment tax and 10% from recovery. Advance tax is extracted at the moment money is earned rather than waiting for the FY to end.
Comparing with the digits of the last four years, advance tax growth of FY 19-20 so far is the least. Growth rates of the last four financial years were 18 per cent in 2018-19, 11 per cent in 2017-18, and 14 per cent in 2016-17. After reducing Rs. 45,000 Crore from the direct tax collection target, the proposed new target is far from realistic.
Tax officers are also tangled from the finance minister’s outreach programmes with officers across the country. While in her meeting in Pune, she asked officers to practice a ‘bit of control’ and not to ‘outreach’ people in the process of tax collection, also pointing out that the preset collection target was not a difficult one to achieve.
One of the tax officers revealed that government while telling them to be easy on taxpayers, on the other hand, is assigning colossal collection targets to achieve. Adding to that, he said, the prevailing situation will only worsen the economic condition of the country.
