Rise in Direct Tax Revenues


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    • India’s net Direct tax collections in 2022-23 have risen to ?7.45 lakh crore, more than half this year’s Budget targets.

    More about the news

    • Based on provisional data, net personal income tax collections grew 17.35%.
      • It is rising faster than corporate income tax collections that were up 16.29% net of refunds. 
    • Securities Transaction Tax (STT) collections combined with personal income tax receipts, grew at a more moderate 16.25%. 
    • Underlining that Direct Tax collections continue to register steady growth, the ministry said that tax refunds have jumped 81% over the preceding year to touch ?1.53 lakh crore.

    What is Direct Tax?

    • Direct tax is paid by a person or an organisation responsible for paying tax directly to the entity that imposed it.
    • An individual taxpayer, for example, pays direct taxes to the government for various purposes, including income tax, real property tax, personal property tax, or taxes on assets.
    • Direct taxes are based on an economic principle that states that those who have more resources or earn a higher income should bear a greater tax burden

    What is Tax Buoyancy?

    • Tax buoyancy explains this relationship between the changes in government’s tax revenue growth and the changes in GDP
      • It refers to the responsiveness of tax revenue growth to changes in GDP
    • When a tax is buoyant, its revenue increases without increasing the tax rate.
    • There is a strong connection between the government’s tax revenue earnings and economic growth
    • The simple fact is that as the economy achieves faster growth, the tax revenue of the government also goes up.
    • Benefits of Tax Buoyancy:
      • Government being the beneficiary: The biggest beneficiary of a higher GDP growth rate is the government itself.
      • No need to borrow: The government may not borrow highly to finance the budget
      • Welfare measures: New schemes and programmes can be lavished because of high revenue growth.
      • GDP growth: If the GDP growth rate registers high, direct income tax collection will accelerate. Generally, direct taxes are more sensitive to GDP growth rate.

    What is Tax Elasticity?

    • A similar looking concept is tax elasticity. 
    • It refers to changes in tax revenue in response to changes in tax rate. 
    • For example, how tax revenue changes if the government reduces corporate income tax from 30 per cent to 25 per cent indicates tax elasticity. 

    Factors responsible in rise in tax collection 

    • Stable Government policies:
      • It is the result of the stable policies of the Government focusing on simplification and streamlining of processes and plugging of tax leakage through effective use of technology. 
    • Effective filing of income tax returns:
      • There has been a remarkable increase in the speed of processing of income tax returns filed during the current financial year.
      • The IT department has successfully used technology to reach out to assesses in non-intrusive ways; for instance, sending email reminding them to file return if not already. 
    • Economic recovery:
      • GST collection increased 28 percent year-on-year to Rs 1.43 trillion on better compliance, revival in consumption, and elevated inflation.
      • The level of economic recovery can also be seen from the value of e-way bills generated which has improved from 16.9 lakh crore in 2021 to 25.7 lakh crore in 2022.
    • Corporate tax:
      • Corporate tax as of now is growing about 25-26 percent.
    • Efficient assessment of incomes:
      • Intensive and extensive use of data analytics and artificial intelligence has prompted assessments to report people’s income accurately. 

    Indirect Taxes – Goods and Service Tax (GST)

    • Goods and Services Tax is an indirect tax used in India on the supply of goods and services.
    • It is a value-added tax levied on most goods and services sold for domestic consumption.
    • It was launched in India in 2017 as a comprehensive indirect tax for the entire country.
    • It is a comprehensive, multistage, destination-based tax- comprehensive because it has subsumed almost all the indirect taxes except a few state taxes. 
    • It is paid by the consumers and is remitted to the government by the businesses selling the goods and services.
    • It is of three types i.e. 
      • CGST to be levied by the Centre, 
      • SGST to be levied by the States and 
      • IGST a tax levied on all Inter-State supplies of goods and/or services.  
      • All these taxes are levied at rates mutually agreed upon by the Centre and the States. 
    • The GST Council headed by the Union Finance Minister is the governing and key decision-making body for GST.

    Source: TH