Coronavirus outbreak: Direct tax shortfall likely to be at 20-year high

The collection of India’s direct taxes for the current year ending March 31 is likely to see a huge deficit of around 1.5 trillion rupees compared to the revised estimates (RE). This is expected to happen for the first time in at least two decades, derailing the government’s budget deficit targets.

According to senior officials, the income tax service estimates that total recovery would be between Rs 10.5 trillion and Rs 10 trillion compared to the revised target of Rs 11.7 trillion. However, the exact numbers could arrive by April 1.

Tax authorities have attributed the shortfall to the global pandemic. But even the first months of the year turned out to be bad for direct tax collection.

Sources in the department said the Vivad se Vishwas program, which is expected to boost collections, has not seen a single big entry so far. Since the program was postponed until June, people should not come forward until the lock is lifted.

The government had set a target of collecting direct taxes of 13.5 trillion rupees for the current year (2019-2020) in the budget forecast (BE), an increase of 17% over the year former.

However, during the year, businesses and businesses experienced a significant drop in demand. This has resulted in job losses and a reduction in investment targets.

In addition, the change in the corporate tax structure coupled with the Covid-19 epidemic made the situation worse.

The government had to revise the BE down to 11.7 trillion rupees in RE due to the reduction in corporate tax rates. This is expected to hit the public treasury with 1.45 trillion rupees and slow the economy.

According to official figures, the tax administration managed to collect 9.57 trillion rupees until March 18, down 5.3% from the corresponding period of the previous year.

Sources said the tax department had started to make efforts after seeing a drop in the third quarter (October-December) in advance payment of tax collection. In the third quarter, the corporate tax sweep fell by 5%. In January, the total collection amounted to 7.3 trillion rupees.

In the fourth quarter (January-March), advance corporate tax payments fell further to 10%.

The deficit could widen the Centre’s budget deficit, which is set at 3.8% of GDP for the current year, said a government source.

The budget deficit exceeded the budgetary target for fiscal year 20 by 28.5% in absolute terms in January itself. However, the government is no longer focused on the economic situation, but to stop the Covid-19 epidemic, which stopped all activities and eroded billions. Tax experts also believe that the priority is not tax calculations, but to contain the spread of the global epidemic.

“At this stage, the immediate objective is to stop the pandemic and not the budget deficit. Rather, the Center and the states should lend as much as possible to support venerable businesses, especially small and medium-sized businesses, and make them solvent, “said Sudhir Kapadia, national tax officer for EY India.

“In addition, the government should also focus on relevant sectors such as hotels, tourist entertainment and aviation, which are completely closed during the foreclosure. Overall, no country, including India, can hope for taxes and improve budget calculations. Even if the budget deficit has widened by 1 to 2%, the focus should be on business survival, “said Kapadia.

Sanjay Sanghvi, partner of Khaitan & Co, said: “This unfortunate development of Covid-19 and the complete foreclosure have derailed the government’s goal of tax collection. This exercise will be an exceptional and historic year for the government in terms of low inflows and fiscal growth.

However, I think that the Centre’s first priority at this difficult time is to contain the spread of this pandemic. “

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