Bengaluru, only region to post growth in direct tax mop up

Bengaluru has surpassed Delhi to take the second spot in reporting higher net direct tax collections during fiscal year 2020-21 (FY21). It is the only city among 18 regions to register a growth in the overall tax collection. At the same time, it has contributed nearly half the equalisation levy, with overall collection from this levy registering a growth of more than 80 per cent.

Mumbai remains the biggest contributor to direct tax collections. Direct taxes mainly comprise corporate tax, personal income tax, securities transaction tax (STT), and equalisation levy. At over ₹2.95-lakh crore, Mumbai topped the list of direct tax collections, Bengaluru follows with over ₹1.17-lakh crore, and Delhi took the third position with over ₹1.16-lakh crore.

IT, e-comm push

“During the last fiscal, sectors such as IT and e-commerce have done much better than others. Since Bengaluru has been a hub for both the sectors, tax collection has been much better,” a senior official from the tax department told BusinessLine . This region saw growth for most parts of the year, he added.

On April 9, the Finance Ministry said the net direct tax collections during FY21 exceeded the Revised Estimate by nearly 5 per cent. Provisional figures show the collection at ₹9.45-lakh crore, which is 104.46 per cent of the Revised Estimate of ₹9.05-lakh crore of direct taxes for FY21. However, it is lower than the net direct tax collection of FY20 (FY20) which was ₹10.51-lakh crore.

“Net direct tax collections for FY21 have shown an upswing, despite the inherent challenges brought in by the Covid-19 pandemic on the economy,” the Ministry said. Further, it highlighted that refunds worth ₹2.61-lakh crore were issued during last fiscal as against refunds worth ₹1.83-lakh crore that were issued during FY20.

Meanwhile, data shows that collection through equalisation levy exceeded ₹2,000 crore, of which, over ₹1,000 crore came from Bengaluru. Introduced in 2016, equalisation levy, also known as ‘Google Tax’, initially applied to payments for digital advertisement services received by non-resident companies without a permanent establishment (PE) here, if these exceeded ₹1 lakh a year. The rate of tax was 6 per cent. The companies using these services are required to withhold the tax amount.

In the 2020-21 Budget, the government widened the ambit of the levy by including e-commerce companies. The applicable tax rate is two per cent (plus a surcharge) on the amount of consideration received/receivable by an e-commerce operator. This came into effect on April 1, 2020.

The imposition and expansion of this levy has not gone well with the United States; the country has proposed a retaliatory tariff on a number of items. Experts feel that the government is in no mood to take its step backwards. In fact, with the latest amendment through Finance Act, it is expected to bring more players within the ambit of this levy, which, in turn, will boost the collections.

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