Tax collection has increased, but Arun Jaitley may be jumping guns by linking it to note ban

As the Union Budget nears, one number everybody is keenly watching is the tax collection data.

The number has assumed significance due to the demonetisation of Rs 500 and Rs 1,000 notes from 9 November. The stated objective of the exercise is reducing tax evasion, among other things.

Finance Minister Arun Jaitley has already expressed confidence that direct and indirect tax mop-up this year will surpass the Budget estimate by March-end.

Jaitley had in his Budget for 2016-17 pegged gross tax revenue at Rs 16.3 lakh crore, about 11 percent higher than gross tax receipts of Rs 14.5 lakh crore for the 2015-16.

 Tax collection has increased, but Arun Jaitley may be jumping guns by linking it to note ban


“We will end this year with higher revenues both direct and indirect taxes, higher than budgeted. Not only are we going to reach the budget estimates, we will exceed the budget estimates both in direct tax and indirect tax this year,” he told reporters here.

In the Budget, he had estimated a 12.64 percent growth in direct tax to Rs 8.47 lakh crore for 2016-17 and 10.8 percent in indirect tax at Rs 7.79 lakh crore.

Direct tax collection during April-December stood at Rs 5.53 lakh crore, up 12.01 percent from the year ago period. This is 65.3 percent of the total budget estimates of direct taxes in 2016-17.

Indirect tax collections, meanwhile, stood at Rs 6.30 lakh crore, up 25 percent from a year ago. This is 81 percent of the Budget estimates for the year.

Central excise, customs and service tax make up for indirect tax kitty, while direct tax is made up of individual income tax and corporate tax.

Denying any slowdown in economy, Jaitley said, “My assessment is that the larger integration of informal economy with the formal economy that will happen in the following quarter will lead to higher revenues of all. This is the purpose of this exercise."

But the question is the finance minister jumping the guns?

In all probability, he is. The reason is that it is too early to make any assessment of the impact on demonetisation on tax collection.

As Frank Dsouza, partner - tax and regulatory services, PricewaterhouseCoopers, says it is too early to make any such assessment.

"The government needs time to analyse and understand the data that is getting collected. It is just one month after the end of the deadline for making deposits. Also there are still people going to the RBI to make deposits," he told Firstpost in an interview (watch here).

"As far as the collection is concerned, in my view, the trend that we are seeing is similar to the one that we saw last year. On the larger picture, you are going to have the indirect taxes that are going to surpass the Budget numbers, and the short fall in the direct tax is going to be made up by the indirect tax collection," he said.

There indeed has been a bump in the last two months in tax collection but that has in line with the trend seen in the previous months.

"So there has been an increase, a slight bump, but I don't think it is out of the ordinary. I don't think that merely because people have gone and deposited cash, they have paid taxes," he said.

According to Dsouza, the government will need to to wait and see how the tax payers' behaviour is going to change. The crucial aspect to watch out for is whether the exercise is going to increase the tax base. To find out this, the government will have to wait for another year.

Data by Kishor Kadam

For full coverage of Union Budget 2017 click here.

Updated Date: Jan 23, 2017 19:01:24 IST