India’s Direct Tax Collections Drop For The First Time In Two Decades

India’s direct tax collections fell for the first time in two decades as a broader slowdown and now a pandemic stalled businesses in Asia’s third-largest economy.

The net mop-up declined 8 percent year-on-year to Rs 10.27 lakh crore in the financial year ended March 2020, a government official told BloombergQuint on the condition of anonymity. That’s a shortfall of Rs 1.43 lakh crore from the government’s revised target of Rs 11.70 lakh crore.

The government’s tax revenue has not grown as expected as the Indian economy is set to grow at its slowest pace in a decade. Also, a cut in corporate tax rates announced in September prompted it to lower the direct tax collection target from Rs 13.3 lakh crore estimated in the budget presented in July 2019. Now the novel coronavirus outbreak threatens to drag down the growth further.

According to the official quoted above, the government’s hope of making up for any shortfall in direct tax collections through the ‘Vivad Se Vishwas’ scheme dashed as the deadline to resolve disputes under this mechanism was extended till June 30 from March 31 earlier.

The corporate tax collection for 2019-20 stood Rs 5.56 lakh crore, while personal income tax mop-up was Rs 4.58 lakh crore, the official said. The collections, however, are expected to increase by a few thousand crores due to adjustment in entries, he said.

The top tax-grossing regions like Mumbai, Delhi, Bengaluru and Chennai saw a year-on-year reduction in tax collections, the official said. While Kanpur and Guwahati saw the highest yearly decline of more than 17 percent, Nagpur witnessed the biggest jump of 29 percent.

Amit Singhania, a partner at Shardul Amarchand Mangaldas, termed it an unprecedented decline in tax collections. “It appears that the decline in collections may continue to next year as well partly as an aftermath of Covid-19 and on account of concessions provided in corporate tax rates,” Singhania told BloombergQuint.