Direct tax mop-up to fall this year for the first time in two decades

Reuters Mumbai | Updated on January 24, 2020

Corporate and income tax collection for the current year is likely to fall for the first time in at least two decades, several senior tax officials told Reuters, amid a sharp fall in economic growth and cut in corporate tax rates.

The government was targeting direct tax collections of ₹13.5-lakh crore ($189 billion) for the year ending March 31 — a 17 per cent increase over the prior fiscal year.

But a sharp decline in demand has stung businesses, forcing companies to cut investment and jobs, denting tax collections and prompting the government to forecast 5 per cent growth for this fiscal year — the slowest in 11 years.

The Tax Department had managed to collect only ₹7.3-lakh crore as of January 23, more than 5.5 per cent below the amount collected by the same point last year, said a senior tax official.

After collecting taxes from companies in advance for the first three quarters, officials typically garner 30-35 per cent of annual direct taxes in the final three months, data from the past three years show.

But eight senior tax officials interviewed by Reuters said despite their best efforts, direct tax collections this financial year were likely to fall below the ₹11.5-lakh crore collected in 2018-19.

“Forget the target. This will be the first time that we’ll see a fall in direct tax collections ever,” said a tax official in New Delhi.

He estimates that direct tax collections for this year could end up roughly 10 per cent below fiscal 2019. The Finance Ministry did not immediately respond to requests for comment.

Direct taxes typically account for about 80 per cent of the government’s projections for annual revenue, and the shortfall may leave the government needing to boost borrowing to meet expenditure commitments.

Published on January 24, 2020

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