In fact, the share of tax revenue in the Centre’s revenue receipts fell to 81.3 per cent in FY20, from 85.8 per cent in the previous year and 84.3 per cent in FY18.
The direct tax to GDP ratio fell to its lowest in 14 years, at 5.1 per cent, while the indirect tax to GDP ratio was at a 5-year low in FY20. The share of corporation tax
in gross tax fell to 27.7 per cent — at least a 10-year low. Further, the share of customs duties in gross tax fell to 5.43 per cent in FY20, from 5.66 per cent in FY19.
Aditi Nayar, principal economist at ICRA, said the cut in corporation tax
rates compounded the impact of the economic slowdown on overall collections, while high gold prices shrunk gold demand and dampened Customs duty inflow.
“We estimate a 30 per cent shortfall in Central taxes, relative to the Budget Estimate for FY21,” said Nayar.
The Central Board of Direct Taxes (CBDT) on Sunday clarified that the gross direct tax collection growth in FY20 was actually 8 per cent, at Rs 4 trillion, but tax reforms worth Rs 1.7 trillion led to a 5 per cent contraction in direct tax revenue last year.
The government had, last year, cut the corporation tax rate to 25 per cent to promote private investment. However, some did not avail of the option because they would have had to forego their minimum alternate tax credits. Former finance minister Arun Jaitley had, in a social media post in 2018, emphasised on the need to improve the Central taxes-GDP ratio by another 1.5 percentage points. It had touched a high of 11.3 per cent in FY18.
“Despite higher compliances in the new system, as far as non-oil taxes are concerned, we are still far from being a tax-compliant society. Salaried employees are one category of tax-compliant assessees,” he said, adding that most other sections would have to improve their track record.