Proportion of direct taxes fall below 50% first time since 2006-07

The contribution of direct taxes in the total tax collection in 2016-17 has fallen below 50 per cent to 49.66 per cent for the first time since 2006-07. This is despite a 15 per cent growth witnessed in the direct tax collection during the year. In the previous year, the contribution of direct taxes was 51 per cent of the total tax collection.

Data released by the Central Board of Direct Taxes (CBDT) shows direct tax collection in 2016-17 was Rs 8.5 lakh crore compared to Rs 7.42 lakh crore in the previous year. The indirect tax collection in 2016-17 was Rs 8.6 lakh crore.

The proportion of direct tax in total tax collections has been falling for the last couple of years. Direct tax collections as a percentage of total tax collection was 56.32 per cent in 2013-14, 56.16 per cent in 2014-15 and 51.03 per cent in 2015-16.

 

"The reason for the fall primarily is slow growth in corporate profits in the last couple of years and a simultaneous increase in service tax collections during the last couple of years," says Madan Sabnavis, chief economist, CARE Ratings.
Corporate tax collection in 2015-16 grew by on 2.7 per cent compared to 5.7 per cent in previous year. In 2016-17, the corporate tax collection registered a drop of 0.5 per cent from Rs 7.68 lakh crore to Rs 7.64 lakh crore. Service tax rates, meanwhile, increased from 12.36 per cent in 2014-15 to 14 per cent in 2015-16 and 15 per cent in 2016-17.

Indirect taxes are said to be regressive in nature as they do not distinguish between poor and rich, and therefore, higher proportion of indirect taxes in total tax collection is not considered ideal.

Meanwhile, the number of effective tax payers in 2016-17 registered a growth 2.3 per cent from 61.3 million to 62.7 million. Effective tax payers include number of income tax returns filed and cases where tax has been deducted at source from the income of the taxpayer but the taxpayers has not filed the return of income.