Final direct tax collections for the financial year 2023-24 (FY24) have ended up higher than not just Budget Estimates (BE) but also the Revised Estimates (RE). The surge in direct taxes is primarily driven by a better-than-expected performance on the personal income tax (PIT) front. FY24 is the first time when PIT collections will be larger than corporate taxes. What is one to make of the ongoing bull run in direct taxes, especially in PIT?
A more informed analysis will have to wait for all tax numbers to be released by the ministry of finance. However, some broad points can be made based on the reported provisional numbers and the RE and BE figures for FY24 and FY25, which were published in the vote-on-account presented on February 1 this year. Three things stand out. FY24 and FY25 are the only two years barring the pandemic year of FY21 when PIT collections have been higher than corporate tax. The strength in PIT collections continues despite the weak momentum of overall consumption expenditure. The share of direct tax collections has once again edged past that of indirect taxes in the Centre’s gross tax revenue.
What do these things mean for the macro economy and policy at large? A growing share of direct taxes in overall tax collections and rising contribution of high-earning individuals in income taxes — data published with a lag shows that incomes at the bottom of the pyramid have not been increasing at the same rate — will make India’s overall tax burden more progressive. But can they make it grow significantly faster? This is where one needs to ask whether the corporate tax rate reduction announced in 2019 has had the desired impact of boosting private investments. If not, then what can be done about it? This ought to be an important area for fiscal policy going forward.
Continue reading with HT Premium Subscription
Daily E Paper I Premium Articles I Brunch E Magazine I Daily Infographics
