Direct tax collection for this year is set to register a fall this year according to tax officials.  If it happens, this will the first time in the last two decade that direct taxes are registering a decline according to the officials quoted by the Reuters news agency.

Direct taxes are dominated by two taxes – the Corporate income tax and Personal income tax. Contribution of direct taxes to centre’s total tax revenue is around 54% as per the last budget.

Centre is aiming a direct tax collection of Rs 13.5 lakh crores for the current fiscal with a tax revenue growth of 17%. But only Rs 7.3 lakh crores was realised till January 23, 2020.  This is lower by 5.5% compared to the last year.

Direct tax collection (2013-14 to 2018-19)

Financial year Total tax collection (lakh cr) Direct tax Growth (%)
2013-14 6.38 14.24%
2014-15 6.95 8.96 %
2015-16 7.41 6.63%
2016-17 8.41 13.45%
2017-18 10. 02 19.13%
2018-19 11.37 13.46%
2019-20 (BE) 13.5 17%

 

Even if a higher tax collection is obtained from the last two months, the revenue from direct taxes may not cross last years amount.

Main reasons for the fall in tax revenue is the slowing economy and the cut made in corporate income tax rate. The CIT rate was reduced to the basic rate of 22% from 30% as part of the fiscal stimulus programme.

Corporate income tax is usually having a high tax buoyancy. This means the tax revenue will register higher growth if GDP growth is higher. As per the current trend, the GDP growth is witnessing a nearly two-decade low and hence, there is no surprise that the CIT is also registering its two decade low growth.