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In News
- Recently, India’s net direct tax collections have crossed 7 lakh crores so far this year which is 23.33% higher than the same period last year signalling a clear post-pandemic rebound in the economy.
Recent data
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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.
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.
What is Tax Elasticity?
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Factors responsible in rise in tax collection
- 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.
- There has been a remarkable increase in the speed of processing of income tax returns filed during the current financial year.
- GST collection increased 28 per cent 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 as of now is growing about 25-26 per cent.
- 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.
- Intensive and extensive use of data analytics and artificial intelligence has prompted assessments to report people’s income accurately.
Benefits of Tax Buoyancy
- Government being the beneficiary: The government can feel relieved and happy if the economy achieves higher growth. 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.
Way Forward
- It is a clear indicator of the revival of economic activity post pandemic.
- It reflects the healthier balance sheets and growing profitability as it recovered from the pandemic-induced slowdown.
- The Centre is counting primarily on healthy direct and indirect tax collection this year to maintain its FY23 fiscal deficit target of 6.4 per cent of GDP at a time when its subsidy and welfare spending commitments have increased due to inflationary pressures and supply-chain disruptions caused by the war in Europe.
Central Board of Direct Taxes
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Source: TH
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