India’s direct tax collections seen falling this fiscal

Tax collection so far this year is more than 5.5 per cent below the amount collected by the same point last year, a senior income tax official statd.

With just two more month for the fiscal year to end, the government is unlikely to meet the target, which was fixed 17 per cent above the actual collections of the previous fiscal year.

With such low tax realisations, it is not realistic to expect finance minister Nirmala Sitharaman to announce any reduction in tax rates when she presents Union Budget 2020 in a week.

It would be interesting to watch how the finance minister will address the economic slowdown India has been facing for the past year.

Following a reduction in tax rates, corporate tax collection for the current year is expected to fall for the first time in at least two decades.

Businesses have seen a sharp decline in demand for products and services, forcing companies to cut investment and jobs, and denting tax collections in the process. India’s economy also recorded a 4.8 per cent growth, the slowest in 11 years.

Even after providing for a rush of tax payments in the last three months of the financial year. After collecting taxes from companies in advance for the first three quarters, officials typically garner about 30-35 per cent of annual direct taxes in the final three months, data from the past three years shows.

Direct taxes account for about 80 per cent of the government's annual renvenue projections and the shortfall may force the government to boost borrowings.

The finance minister had announced several measures over the past one year to try and spruce up growth in the economy. This included several sops for the real estate sector, and a cut in corporate tax.

The government was expected to give a big stimulus to revive demand by bringing more money into the hands of consumers. More dispensable income the more the spending, which would in turn boost demand and production.