The Centre’s gross tax revenue, budgeted at Rs 22 lakh crore for 2021-22, is only about 9.9% of GDP, and less than double that, combined with the states’.
The spurt in direct tax collections in the first half of this fiscal is creditable from a recovery point of view, but not quite, in terms of realising India‘s tax potential. Aided by higher advance tax payments by companies, direct tax collections as on September 22 grew by 47% to touch Rs 6.45 lakh crore. Net direct tax collections rose higher at 74% to touch Rs 5.7 lakh crore, better than the pre-pandemic level in 2019-20. Direct tax collections witnessed an increase across most sectors, barring telecom and aviation. Greater formalisation of the economy following the acceleration in digital payments also helped improve tax compliance of large swathes of the economy. Revenues can go up further with better mining and analytics of the data on goods and services tax (GST).
GST creates audit trails across the income and production chain, enabling revenue authorities to tap into the unified potential of the tax base. A diligent follow up of audit trails and data crunching (read: the more the data mining, the better the algorithms) will help widen the direct tax base. Of the total tax collections, about two-thirds come from regressive indirect taxes. The share of direct taxes in total tax revenues must increase, underscoring the need to raise the efficiency in tax collections.
The Centre’s gross tax revenue, budgeted at Rs 22 lakh crore for 2021-22, is only about 9.9% of GDP, and less than double that, combined with the states’. The aim should be to achieve a tax-to-gross domestic product (GDP) ratio comparable to the OECD average of about 34%. Low, uniform corporate tax rates will not dent overall collections, if efficient, inclusive GST leads to ever-expanding formalisation of the economy and diligent milking of the tax base.