Decline in direct tax collection on expected lines and temporary: CBDT

The Central Body of Direct Taxes (CBDT) on Sunday said that fall in the net direct tax collection for the financial year 2019-20 was "on expected lines and is temporary in nature". The tax authority said that decline in direct tax collection was "due to historic tax reforms" undertaken by the government and "much higher refunds" issued during the last fiscal.

During FY20, the revenue impact of tax reforms due to cutting of corporate tax was Rs 1.45 lakh crore, Rs 23,200 crore for the Personal Income Tax (PIT). Among others, the collection was also affected by income tax exemption for individuals earning up to Rs 5 lakh and an increase in the standard deduction.

Adding to it, total refunds of Rs 1.84 lakh crore was given as compared to Rs 1.61 lakh crore in FY19, a year-on-year growth of 14 per cent. The tax body further stated the buoyancy in the collection of direct taxes, which consist of corporate taxes and personal income taxes, has remained positive in 2019-20, resulting in an increase in the gross tax collection as compared to 2018-19.

"Therefore, by removing the effect of the extraordinary and historic tax reform measures and higher issuance of refunds during the FY 2019-20, the buoyancy of total gross direct tax collection comes to 1.12 and almost 1 for Corporate Tax and 1.32 for Personal Income Tax. These buoyancies indicate that the growth trajectories of both the arms of direct taxes, i.e., Corporate Tax and PIT are intact and are rising steadily," the CBDT said.

The higher growth rate in direct taxes as compared to the growth rate in the GDP even in these challenging times proves that recent efforts for the widening of the tax base undertaken by the Government are yielding results, it added.

The CBDT issued this statement in response to media reports that claimed that the growth of direct taxes collection for the FY20 has fallen drastically and buoyancy of the tax collection as compared to the GDP growth has reached negative.

"There are reports in a certain section of media that the growth of direct taxes collection for the FY 2019-20 has fallen drastically and buoyancy of the direct tax collection as compared to the GDP growth has reached negative. These reports do not portray the correct picture regarding the growth of direct taxes," the CBDT said.

Gross direct tax collections declined to Rs 12.33 lakh crore in FY20, compared to Rs 12.97 lakh crore in the corresponding period of FY20.

The CBDT asserted that in spite of the tax reforms, the investment has not been picking up is not correct and is without an appreciation of the reality of the business world. "The setting up of new manufacturing facilities requires various preliminary steps like the acquisition of land, construction of factory sheds, setting up of offices and other infrastructures, etc. These activities cannot be completed in just a few months and the manufacturing plants cannot start manufacturing goods from the next day of the announcement of reforms," it said.

The government had announced tax reforms in September 2019 and the results were expected to be visible in the next few months and in years to come. The outbreak of COVID-19, may further delay this process but the growth in production due to these tax reforms is bound to happen and cannot be stopped, the CBDT said.

"The government is committed to providing a hassle-free direct tax environment with moderate tax rate and ease of compliance to the taxpayers and also to stimulate the growth by reforming the direct taxes system," it added.

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