India’s tax pie appears to have undergone a subtle alter with a sharp drop in direct tax collections resulting from a disproportionate influence of the COVID-19 carnage on incomes.
The share of indirect taxes, which mostly comprise of levy on goods and services as properly as import duty, has risen when that of direct taxes – created up of corporate and individual earnings tax – has gone down in 2020.
In an interview with PTI, Finance Secretary Ajay Bhushan Pandey mentioned in a pandemic like this exactly where the economy has been impacted, any big scale modifications influence direct taxes more severely, whereas indirect tax collection is largely proportional to business enterprise turnover and compliance.
“In a situation like this where the economy has been impacted and we are on the recovery path, the direct taxes are impacted more severely because the profitability of a company is not directly proportional to the turnover always. If your turnover reduces below a certain benchmark then the profit will not merely reduce, but it may get into a negative zone and therefore the company may not pay any income tax as it will be into a loss.
“Similarly, when we are in a recovery phase, the providers will take a longer time to come into the lucrative zone to spend earnings tax. In the case of indirect tax, it is more or significantly less proportional to the business enterprise volume and turnover and compliance,” he said.
While the government has officially not released direct and indirect tax collections, industry sources said the share of indirect taxes in overall tax collections rose to about 56 per cent, the highest in over a decade for the period. This follows a sharp 26-27 per cent decline in direct tax collections.
Direct taxes are a direct outcome of income levels while indirect taxes are mostly driven by consumption as demand for some goods is inelastic either because of they being essential in nature or not substitutable like petrol and diesel.
Excise collections rose in 2020 after the government raised the tax on petrol and diesel by Rs 13 and Rs 10 per litre, respectively. Customs collections, which reflect duty paid on goods imported, grew substantially in November and December. While the revenue in December was up 94 per cent to Rs 16,157 crore, in November it was up 43 per cent to Rs 11,598 crore.
Pandey said this buoyancy in Customs collection would be due to many factors, including the introduction of faceless assessment.
“We are performing the evaluation as to what sorts of goods are obtaining imported and customs duty on these things,” he said. “We have also brought in CAROTAR guidelines wherein the import from FTA nations are also getting subjected to higher scrutiny and we are making sure that goods which have undergone requisite worth addition in exporting nations only they are provided the advantage of FTA. So these measures, along with an uptick in the economy, are yielding benefits.” The havoc wrecked by the pandemic on tax collections – that is a reflection of the economic well-being of a nation – led to the first major showdown between the Centre and the states since the implementation of the GST regime three years ago.
Sharply split on political lines, states demanded Centre to compensate them – through borrowing or from its own coffers – for the loss of revenue in a year that saw 69-days of complete lockdown and gradual easing thereafter.
The sharp decline in GST collections has led to Rs 1.80 lakh crore shortfall in GST revenues on states. This includes Rs 1.10 lakh crore revenue loss on account of GST implementation and Rs 70,000 crore on account of the pandemic.
The Centre initially opposed the demand made by non-BJP ruled states, insisting that states should borrow against future accruals of GST. For days and weeks, it gave all kinds of reasons why states should borrow but one fine day it agreed to borrow and pass on the loans to states.
GST collections, which along with excise and customs duties form part of indirect tax kitty, seemed to have stabilised over Rs 1 lakh crore mark towards the end of the year as the economy reflated and touched an all-time high of over Rs 1.15 lakh crore in December.
But by then the pandemic had left its indelible mark.
Deloitte India Partner M S Mani said “the trend in GST collections for the duration of the subsequent two months would indicate the extent to which the collection targets are most likely to be fulfilled. The shortfall in the collections for the duration of the initial element of the existing fiscal due to the countrywide lockdown is important and would have a bearing on the fiscal deficit numbers”.
Shardul Amarchand Mangaldas & Co Partner Rajat Bose said “It seems that the share of indirect tax collections will improve in the general tax collections this year. This is for the reason that typically, the deficit in indirect tax collections is considerably significantly less as compared to the deficit in direct tax collections.” Pandey mentioned the government took numerous landmark actions for the duration of 2020 such as bringing a dispute resolution scheme Vivad Se Vishwas, introducing faceless assessment, equalisation levy on e-commerce provide or services, replacing Form 26AS by Annual Information Statement.
With more than Rs 9 lakh crore locked up in disputes, the Budget announced the Vivad Se Vishwas scheme by way of which disputes could be settled on a payment of tax which is beneath litigation along with full waiver from interest and penalty and immunity from prosecution. The scheme garnered more than Rs 72,000 crore till mid-November.
Faceless assessment and appeals has brought in a paradigm shift from the earlier face-to-face scrutiny assessment and appeals process and is aimed at making sure no individual interface amongst taxpayer and assessee.
Taxability of dividends in India underwent a big overhaul for the duration of the year with Finance Act 2020 abolishing Dividend Distribution Tax (DDT) payable by domestic providers on the declaration of the dividend and re-introducing the standard regime of taxation of dividends in the hands of shareholders.