Industry & Economy
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Taxation
Direct taxes account for 50% share of Central revenues
Harish Damodaran
K.R.Srivats
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In 1990-91, less than a fifth of gross tax revenues came from direct taxes
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New Delhi
Feb. 28
For the first time, direct taxes will constitute almost half of the Centre's gross tax revenues.
Of the total of Rs 4,67,848 crore to be mobilised from all Central tax sources in 2006-07 (revised estimate), direct taxes - mainly those on personal income and corporate profits - will account for Rs 2,29,272 crore or 49.01 per cent.
For the coming fiscal, these numbers are budgeted at Rs 5,48,122 crore, Rs 2,67,490 crore and 48.8 per cent respectively.
To grasp the significance of the above, one needs to only go back some 15 years.
In 1990-91, less than a fifth of the Centre's gross tax revenues came from direct taxes.
The major source of revenues was excise, followed by Customs. Thus, the Centre mainly taxed production and trade, as opposed to incomes or profits.
This has changed in the post-reforms period.
The biggest taxation source of the Centre now - in fact, since the current fiscal - is corporate profits (Rs 1,68,401 crore projected in 2007-08), ahead of excise (Rs 1,30,220 crore), income (Rs 98,774 crore) and Customs (Rs 98,770 crore).
The shift away from indirect to direct taxes all through the post-reforms period is viewed as progressive on two counts.
Firstly, by taxing earnings of individuals and corporates rather than production and trade, there is less stifling of economic activity and employment generation.
Secondly, whereas taxes on goods are paid by the poor and rich alike, taxes on income and profits have a relatively egalitarian character.
The other important change, which has led to a progressive widening of the tax base, has been service tax.
Before 1994-95, the Centre was not realising a single paise by taxing services.
In 2006-07, revenues from this sector - contributing an estimated 55 per cent of the country's gross domestic product (GDP) - are slated to touch Rs 38,169 crore and cross the Rs 50,000-crore mark in the coming fiscal.
Within indirect taxes, therefore, there is a growing reliance on taxing services in addition to only domestically manufactured or imported goods.
Another positive development is the Centre's overall tax-GDP ratio. Between 1990-91 and 2001-03, this has steadily fallen from 10.12 per cent to 8.20 per cent.
But with a revival in the economy, not only has the trend been arrested, in 2005-06 the tax-GDP ratio crossed double digits. It is budgeted at nearly 12 per cent for 2007-08.
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