Economic Slowdown Affects Advance Tax Collection Targets

Though a steep revenue collection goal set for 2019-20, the advance tax received by the income tax department during the first half of the financial year has been dismal. The current scenario indicates a deepening economic slowdown. 

A growth rate of 5% is seen in the direct tax collection this year, leaving scope for expansion up to 27% in the remaining half of the financial year. If the goal is achieved in the remaining period, the budget target of 17.3% growth can be realised.

An overall advance tax collection, i.e. the aggregate of personal and corporate advance taxes, has grown by 6% between April and mid-September as compared to the 18% tax collected during the same period in the previous year. 

After the second instalment, an advance tax of Rs.2.2 trillion was collected. Similarly, gross direct tax of Rs.5.5 trillion was collected against the full-year target of Rs.13.35 trillion. Considering the advance tax collection, there has been a growth of 6.5% in corporate taxes and 3.5% in personal taxes.

A government official stated to The Wire that the tax revenue collection hasn’t been remarkable on account of the slow pace of the expanding economy. The key industries are impacted due to this slowdown. He added that meeting the set revenue targets may get tough if the economic situation does not improve.

Also Read: Can Tax Cuts Fight Away the Economic Slowdown?

The government expects a tax buoyancy of 1.44 this year, which is higher than 1.21 achieved last year. To make it simpler, direct tax collection rises by 14.4% if the nominal GDP of the country increases by 10%.

Nominal GDP for the first quarter grew by 8% against the 12% planned in the budget for the financial year 2019-20. Therefore, institutions such as the International Monetary Fund (IMF) and the Reserve Bank of India (RBI) have cut India’s growth forecast. 

Usually, about 45% of the direct tax revenue comes from advance tax, 35% from tax deducted at source, 10% from self-assessment, and the remaining 10% from recovery.

However, the advance tax collection so far in the current financial year has been the lowest in four years. Though the direct tax collection target has been reduced by Rs.45,000 crore, the target seems hard to achieve. 

Tax officers are asked to go easy on taxpayers by the Finance Minister. On the other hand, Nirmala Sitharaman has also stated that the tax collection targets are easy to achieve, putting the tax collection officers in a tough situation.

For any clarifications/feedback on the topic, please contact the writer at apoorva.n@cleartax.in