In the interim budget for FY25, Finance Minister Nirmala Sitharaman took credit for the surge in direct tax collections (mainly taxes on personal and corporate income) seen over the past decade. When he introduced his sixth budget to Congress, he said collections had more than tripled and the number of individuals filing tax returns had increased 2.4 times.
In the interim budget for FY25, Finance Minister Nirmala Sitharaman took credit for the surge in direct tax collections (mainly taxes on personal and corporate income) seen over the past decade. When he introduced his sixth budget to Congress, he said collections had more than tripled and the number of individuals filing tax returns had increased 2.4 times.
Direct tax collection amount excluding refunds INRBy January 10 of this year, the amount was 14.7 billion yen, an increase of 19.4% compared to the same period in FY2011. Direct tax collection has benefited from further formalization of the economy and intensive mining of goods and services tax data, contributing to the expansion of the tax base.
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Direct tax collection amount excluding refunds INRBy January 10 of this year, the amount was 14.7 billion yen, an increase of 19.4% compared to the same period in FY2011. Direct tax collection has benefited from further formalization of the economy and intensive mining of goods and services tax data, contributing to the expansion of the tax base.
Tax revenues were very strong in the 2022-23 fiscal year, with direct taxes as a percentage of GDP rising to 6.11%, the highest level in 15 years.
However, strangely, the outlook for the interim budget for FY2025 is quite modest. We expect direct tax collections to increase by 13.1%, roughly in line with pre-COVID-19 trends.
In fiscal 2019, before the coronavirus outbreak, collections increased by 13.5%. After that, it decreased in the two corona years of 2020 and 2021. Thereafter, direct tax collections increased by 40.1% in FY21, benefiting from the lower levels of the previous year.
It's unclear why budget authors set such conservative estimates for fiscal year 25. Perhaps to avoid missing the mark, or perhaps because it is unclear how well Sitharaman's bet on corporate tax cuts announced in September 2019 will pay off.
The interim budget estimates gross tax revenue (GTR) for the current financial year, FY24, to be about 2.2 per cent higher than projected in the last Union Budget. This is primarily because personal income tax collections exceed the budget. GTR is likely to be INRAccording to the preliminary budget estimate, it will be 3,437,211 billion yen in FY2014.
The GTR budget for fiscal year 2025 is as follows: INR3,830,796 million (called budget estimate because it is a forecast). Therefore, the interim budget projects that next fiscal year's GTR will be 11.5% higher than his fiscal year.
This is also more or less consistent with pre-COVID-19 trends. According to time series data from the Central Board of Direct Taxes, from 2015 to 2016, GTR increased by 16.7% year-on-year.
Growth accelerated to 18.3% in 2017, but slowed in 2018 (11.6%) and 2019 (8.5%). Then, businesses faced the brunt of the lockdown and the pandemic hit tax revenues, impacting direct tax collections.
The GTR target set for FY25 is also modest at 11.7% of GDP, just 0.1% higher than expected for FY24.
Of the total tax revenue, direct and indirect taxes are estimated to increase modestly at 13.1% and 9.4%, respectively.
Tax buoyancy, or the responsiveness of tax revenues to changes in nominal GDP, was not calculated in fiscal 2021 as both nominal GDP and tax collections contracted from the previous year. In 2021-22, it was 2.52 due to the basic effect. However, even though the tax revenue growth rate in 2022-23 was 17.8%, exceeding the nominal GDP growth rate of 15.1%, the growth rate in 2022-23 was low at 1.18.
The overall tax buoyancy is estimated to be just around 1.10 in the FY25 budget. Ideally, a tax buoyancy of 1.25 would provide fiscal space for the government to meet its spending commitments.
Is the government being too cautious about the outlook for tax revenue increases, or is it worried about whether it will be able to sustain the recent surge in tax collections?
We know that inflation increases tax revenues, and they are still high. When private investment is modest, direct tax revenues also tend to increase. This means that when a company's capital stock does not increase, depreciation costs are lower, which strengthens the company's profits while increasing its direct tax burden.
Presumably, the interim budget anticipates that inflation will trend downward, private investment will increase, and depreciation charges will increase.
