Budget 2024: Why India's taxpayer base and tax collections are going up, up, up

India’s tax base is growing and tax collections are rising. That was one of the big takeaways of Finance Minister Nirmala Sitharaman’s Interim Budget speech. But what is happening? What did Sitharaman say? And why is this happening? Is there an indirect tax angle? Let’s take a closer look: What happened and why? Sitharaman said the direct tax collections have tripled since 2014 and that the  number of taxpayers has swelled nearly two-and-a-half times in the same period. She explained that this is down to the government bringing down and rationalising tax rates. She said under the new tax scheme, those who earn up to Rs seven lakh have no tax liability.

That figure was Rs 2.2 lakh in a decade ago.

Meanwhile, the limit for presumptive taxation for retail businesses was raised to Rs three crore from Rs two crore. The threshold for professionals eligible for presumptive taxation was also raised to Rs 75 lakh from Rs 50 lakh. The corporate tax rate was also lowered to 22 per cent from 30 per cent for domestic companies and 15 per cent for certain new manufacturing firms, Sitharaman added. “I would like to assure the taxpayers that their contributions have been used wisely for the development of the country and welfare of its people. I appreciate the tax payers for their support,” Sitharaman said. Sitharaman said the Prime Minister Narendra Modi government has been concentrating on improving services for the taxpayers. She said the overhaul of the old assessment system previously based on jurisdiction in favour of Faceless Assessment and Appeal has led to ‘greater efficiency, transparency and accountability.’ “Introduction of updated income tax returns, a new Form 26AS and prefilling of tax returns have 26 made filing of tax returns simpler and easier,” Sitharaman said. The noted that the average processing time of returns has been brought down from 93 days in the 2013-2014 Financial Year to merely 10 days this Financial Year – thus speeding up refunds. What’s the indirect tax angle? Sitharaman chalked up some of the success to the Goods and Services Tax. “By unifying the highly fragmented indirect tax regime in India, GST has reduced the compliance burden on trade and industry,” Sitharman said.

She cited a survey showing that  94 per cent of industry leaders view the transition to GST as ’largely positive’.

“According to 80 per cent of the respondents, it has led to supply chain optimisation, as elimination of tax arbitrage and octroi has resulted in disbanding of check posts at state and city boundaries.” Sitharaman also noted the GST tax base has more than doubled. The average monthly gross GST collection has almost doubled to ₹ 1.66 lakh crore this year, she noted. Sitharaman also said states have benefited from GST. “States’ SGST revenue, including compensation released to states, in the post-GST period of 2017-18 to 2022-23, has achieved a buoyancy of 1.22. In contrast, the tax buoyancy of State revenues from subsumed taxes in the pre-GST four-year period of 2012-13 to 2015-16 was a mere 0.72.” As per Moneycontrol, tax buoyancy is the ratio of growth in tax collections to nominal GDP. Sitharaman said that consumers have benefitted most from GST. “…reduction in logistics costs and taxes have brought down prices of most goods and services,” Sitharaman concluded. What do experts say? That the government’s tax collections in 2023-2024 are far outstripping its Budget estimate. Moneycontrol quoted a survey of 10 economists as predicting that tax collections, on average, would surpass the Budget estimate by around Rs 65,000 crore. The report stated that net tax collections would also be almost Rs 60,000 crore more than previously envisaged. “2023-24 tax revenue continued to imitate the non-linear relationship between economic activity and taxes, significantly outdoing nominal GDP growth,” economists Madhavi Arora and Harshal Patel of Emkay Global Financial Services wrote as per Moneycontrol. The outlook is even better for the next financial year. “In 2024-25, we expect gross tax revenues to grow faster at 12.2 percent to around Rs 38 lakh crore driven by strong growth in corporate, income tax, and GST collections,” Rahul Bajoria, managing director, head, EM Asia (ex-China) Economics at Barclays told the outlet. “The GST audits by the government are also helping to unearth cases of under-reporting, inappropriate input tax credit, and fake invoices. This may also provide some further legroom for GST collections as compliance continues to improve,” Elara Capital said in a note. With inputs from agencies