What is the issue?
- Widening tax net and increased tax collections are achievements of the recent government initiatives.
- However, declining non-individual returns and rising cost of collections call for a closer examination.
What are the recent developments?
- Various policy measures have ensured bringing more people under the direct tax net in the recent past.
- The number of tax returns filed recently went up by about 24.6 per cent.
- The latest direct tax collections were marginally higher than that presented in the Revised Estimates in the last Budget.
- Personal income tax collections rose by 21 %, compared to 8% in the previous year.
- Corporation tax collections rose by 7%, compared to 6% in the previous year.
- Indirect tax net is also getting wider because of a rise in the number of entities getting registered under the goods and services tax (GST).
What are the points to be noted?
- While individual tax returns went up, returns filed by non-individuals saw a drop of about 10 per cent during the same period.
- This includes firms, companies, associations of persons, bodies of individuals and Hindu undivided families.
- The drop could be due to -
- the crackdown on shady or non-operating companies, used largely for engaging in questionable transactions in post-demonetisation phase.
- the cancellation of over a million duplicate or multiple permanent account numbers has excluded a larger portion of the earlier tax filing firms.
- States like Haryana, Karnataka, Tamil Nadu, West Bengal, Gujarat accounted for a considerable rise in tax collection in the post-demonetisation phase.
- However, states like Maharashtra's and Delhi's growth in collections are much lower in percentage in comparison to the states above.
- This is despite the fact that the two states together account for almost half of the country’s total direct tax collections.
- Tax deduction at source and advance taxes as a share of total direct tax receipts of the Centre raises the question on the increased cost of collections.
What is to be done?
- Government has to analyse deeper into the reasons for 10 per cent drop in filing of returns by non-individuals and the disparity among states.
- Also, the impact of GST on the tax net is to be seen in the long run.
- With the spread of digitisation and technology, efforts to ensure lower tax collection cost is of importance.
Source: Business Standard
