With strong collections, record tax-to-GDP ratio likely in FY23: Revenue Secretary Tarun Bajaj

Encouraged by strong tax revenues this fiscal year, Revenue Secretary Tarun Bajaj said on Friday that India’s tax-to-GDP ratio is expected to reach its highest level this year, after being subdued in recent years due to the reduction in tax rates and the pandemic effect.

It should be recalled that the gross tax to GDP ratio was 11% in FY2019 and fell to 9.9% in FY20 and improved slightly to 10.2 % in FY21 (partly due to lower GDP).

Gross tax revenue exceeds budget forecast

In the 2022 budget, which was presented by Finance Minister Nirmala Sitharaman on February 1 this year, the budgeted gross tax revenue at the revised stage was higher than the budget estimate by around ₹3 lakh crore. This is probably the first time that gross tax revenue at the revised estimate stage has exceeded the budget estimate under all headings (corporate tax, personal tax, customs duties, excise duties and GST).

“Our tax-to-GDP ratio went below 10% the year we cut tax rates. It has now started to rise. I wouldn’t be surprised if this fiscal year’s tax-to-GDP ratio is one of the highest or highest on record for direct taxes and indirect taxes taken together. It is a good sign that the government has stabilized in tax policy and that the corporate sector is also adjusting to the less exempt regime and we are moving forward together,” Bajaj said during a post-budget interaction hosted by the industrial body Assocham.

“Big companies are doing well”

Bajaj pointed out that the latest fiscal momentum is a clear indicator that companies – especially large ones – are doing well. “Unless the corporate sector is doing well, I don’t think we can get the wheels of the economy moving. Although revenues are good, we are happy that big companies are doing well (of course MSMEs are not doing so well),” he said.

Bajaj pointed out that in the last budget as well as in the current budget, the efforts of the government have been to ensure the stability and predictability of the tax system. “The government hasn’t tried too hard to tinker with the tax system. Some changes and conveniences for taxpayers (like reduction of disputes, allowing updated return and faceless assessment, etc.) have been made.

He also noted that the government had the option of cutting spending and not increasing capital spending so that it could show consolidation. However, he chose not to do so in order to stimulate economic growth and provided a strong boost to capital spending.

“Our investment spending as a percentage of GDP had stagnated. We have now been able to more than double our capital expenditure over the past three years. Once the GDP is pushed through this mechanism, a lot of things like employment, growth will take place. The private sector will seek to replace public investment and drive the economy forward. It is only in this context that the preferential tax rate of 15% for new manufacturing units has been extended for one year in this year’s budget,” Bajaj said.

When asked if the latest one-year extension of the preferential tax rate of 15% for new manufacturing units will be a permanent feature or if companies will have to revert to 22% after 2024, Bajaj replied with the negative.

“I think the message is very clear. We want you to set up your manufacturing units quickly. The deadline has been extended by one year. There will be a sunset clause and after that you will have to go to 22%. 100, which is the corporate tax rate. This was granted as a special dispensation for new crafting units to appear and for you to craft units as soon as possible,” Bajaj said.

On the new corporate tax regime, Bajaj said businesses are settling in and moving towards the lower rate of 22%. “My own assessment is that as companies exhaust their exemptions they will start moving to the new tax regime because there is a big difference between 30% and 22% that companies can benefit from,” he said. -he adds.

Regarding special economic zones, Bajaj noted that the government has not introduced risk management. “We don’t want to have a physical presence in these SEZ areas. We want to interact with you through technology and risk management systems. Over the next six months we will try to do that,” he said.

“New experience”

Chairman of the Central Board of Direct Taxes (CBDT), JB Mohapatra, said the budget includes several innovative measures to reduce litigation. A new section 156A of the Appropriation Bill allows an assessment officer to give effect to an order of the contracting authority under the IBC and consequential orders of the NCLT and SC. “This is the first time an income tax officer would give effect to an order from an authority other than income tax. 156A statutorily binds the income tax authority to judicial authority elsewhere. This is an experiment that will not only clean up the department’s gross claim position, but also help taxpayers clean up the claim on the department’s books,” Mohapatra added.

A separate provision has been introduced in the finance bill to ensure that repetitive appeals are eliminated and thus prevent disputes from being generated at the level of the appeals forum.

The budget also opened up the possibility for a restructured entity to file a revised return within six months of being ordered by an authority, Mohapatra added.

Published on

February 04, 2022

Sallie R. Loera