The Income Tax Department has successfully used technology to reach out to the assesses in non-intrusive ways
A major factor that has helped the Modi – government keep up the tempo of investment in building infrastructure and other development activities and continues with welfare schemes in desired measure without causing any slippage in fiscal deficit target has to do with a steep rise in tax collection.
The gross tax revenue (GTR) – including total direct tax collection, proceeds from Goods and Services Tax or GST, customs and excise duty – net of refunds – surged from around Rs 21,11,000 crore during the financial year (FY) 2019-20 to Rs 30,50,000 crore during 2022-23 – an increase of about 50 per cent. Even as GTR during 2020-21 languished at around Rs 22,17,000 crore (courtesy of Corona pandemic), a major boost came during 2021-22 and 2022-23. Unlike in the past when invariably, the revised estimate (RE) or the actual number for the relevant year would fall short of the budget estimate (BE), in these two years, the position reversed with the RE/actual exceeding the BE – that too by a substantial margin.
During 2021-22, the RE of GTR at Rs 25,20,000 crore (RE includes actual for the 10 months up to January 31, 2022 and estimate for the remaining two months of the FY i.e. February and March; it is mentioned in the budget for the following year i.e. 2022-23 presented by the Union Government on February 1, 2022) was Rs 300,000 crore higher than the BE of Rs 22,20,000 crore. The ‘actual’ albeit for all 12 months of the FY at Rs 27,10,000 crore turned out to be even higher than the RE of Rs 1,90,000 crore.
Thus, the actual GTR during 2021-22 was a whopping Rs 490,000 crore higher than the BE. For 2022-23, the finance minister, Nirmala Sitharaman had set a target (read: BE) for GTR at Rs 27,60,000 crore. Against this, the RE (as given in the budget for 2023-24 presented on February 1, 2023) at Rs 30,40,000 crore was Rs 280,000 crore higher. The ‘actual’ at Rs 30,50,000 crore was even higher than the RE by Rs 10,000 crore. When compared to the BE, the actual was higher by a huge Rs 290,000 crore.
In May 2022, the government announced a cut in central excise duty (CED) on petrol and diesel to give relief to consumers from the high prices of these fuels resulting in a revenue loss of about Rs 90,000 crore. But, for this, actual GTR during 2022-23 would have been even higher at Rs 31,40,000 crore exceeding the BE by Rs 380,000 crore.
The reason for this spectacular performance is primarily two-fold. First, during 2021-22, nominal GDP (taxes being levied as a percentage of the value of income-generating activities in different sectors that make up the GDP, and their collection increases in tandem with it) grew by 18.4 per cent which was 4 per cent higher than 14.4 per cent growth assumed at the time of arriving at the BE. Likewise, during 2022-23, nominal GDP grew by 15.9 per cent which was 5.6 per cent higher than the 10.3 per cent growth assumed in the budget. The other factor has to do with the tax-GDP ratio. For any given level of nominal GDP, if this ratio is higher, that would lead to higher tax collection.
For 2022-23, Sitharaman had arrived at BE for GTR assuming a tax-GDP ratio of 10.7 percent. If one were to apply this ratio to the actual nominal GDP value for 2022-23 (around Rs 27200,000 crore), GTR would come to Rs 2910,000 crore. Against this, the actual GTR was Rs 30,50,000 crore. Divide this by actual nominal GDP, we get the tax-GDP ratio of 11.2 per cent which is higher than what was assumed in the budget. Likewise, the actual tax-GDP ratio during 2021-22 was 11.5 per cent against 9.9 per cent assumed in the budget. In short, the unprecedented surge in tax collection isn’t just due to an increase in economic activity as manifested in higher growth of GDP but also due to a larger number of entities paying taxes and each entity paying more which is reflected in the higher tax-GDP ratio. On both counts, Modi – government deserves credit for doing all that is necessary to give a boost to GDP as well as the tax-GDP ratio.
After successfully steering through the turbulent times caused by Corona pandemic during 2020-21 (there wasn’t any let up in investment in infrastructure despite heavy financial commitments to protect health and livelihoods), the government kept up the momentum of investment in the following two years to lead growth from the front. Besides, it created a conducive environment for the private sector to invest on one hand and boost aggregate demand on the other. The reform measures included inter alia expediting decisions and making the process policy-driven, ease of doing business, simplification of rules, speeding up clearances, cutting bureaucratic red tape, use of technology in delivering services, sector-specific policy reforms, boost to start-ups and MSMEs (micro small and medium enterprises), measures to attract foreign investment and so on.
On the taxation front, major reforms measures include a steep reduction in corporate income tax (CIT) rate to 15 per cent for new manufacturing enterprises and to 22 per cent for existing firms; a reduction in the personal income tax (PIT) with emphasis on doing away with exemptions and deductions; abolition of dividend distribution tax (DDT). As for indirect taxes, the Goods and Services Tax (GST) regime has been rationalized and restructured from time to time with a focus on reducing the tax burden and ease of doing business. While these have combined to give a push to GDP, relentless efforts have been made by the tax authorities – in both direct and indirect taxation – to ensure compliance and prevent evasion.
In the indirect taxes area, the government has focused on strengthening of GST infrastructure with emphasis on driving all businesses to be a part of the GST network, and truthfully report all transactions (generation of e-way bills, and e-invoices are mechanisms to make it happen) and prevent fraudulent input tax credit or ITC (an acronym for a refund of tax paid by a supplier on purchase of inputs) claims.
These measures ensure that businesses at all levels in the supply chain are under the department’s gaze on a real-time basis enabling timely action. During 2022-23, the Directorate General of GST Intelligence (DGGI) detected GST evasion of over Rs 100,000 crore. The efforts continue at a vigorous pace as may be seen from a recent nationwide crackdown by the GST authorities which has resulted in the detection of tax evasion of Rs 30,000 crore. As a result, the indirect tax to GDP ratio has gone up from 4.7 per cent during 2019-20 to 5.2 per cent during 2022-23
On the direct tax front, the Income Tax department has successfully used technology to reach out to the assesses in non-intrusive ways; for instance, by sending e-mail reminding them to file a return if not already or generating an ‘auto-populated’ form – a form in which income of the assesses from various sources is pre-filled. In particular, intensive and extensive use of ‘data analytics’ and ‘artificial intelligence’ has prompted assesses to report their income accurately thereby avoiding short payment. As a result, the direct tax to GDP ratio increased from 5.3 per cent during 2019-20 to 6 per cent during 2022-23.
This being higher than the indirect tax to GDP ratio of 5.2 per cent shows that the government is moving towards a more progressive taxation structure.
(The writer is a policy analyst)
https://www.dailypioneer.com/2023/columnists/tax-reforms-are-yielding-good-results.html
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