Economic slump causes mayhem; All 5 taxes miss the budget target; Corporation Tax biggest loser

As predicted, the slowdown in the economy had its toll on tax collections. While the Corporation Tax is the biggest loser, there is not a single tax – Income Tax, GST, Excise Duty, and Customs that will meet its budget target.

New Delhi:Budget 2020-21: A slowing economy that compelled finance minister Nirmala Sitharaman to announce a sharp cut in Corporation Tax Rate last year eventually took its toll on the Union government’s finances. In order to shore up a sagging economy, Nirmala Sitharaman in September last year reduced the Corporation Tax rate for domestic companies to 22%, bringing down the effective tax to 25.17% from existing 31-32%. Similarly, for the new manufacturing companies set up after October 1, the rate was fixed at 15% without exemptions that brought down the effective tax rate with surcharges and cess to just 17.01%.

Corporation Tax, GST and Income Tax, these three taxes are the biggest sources of the Centre’s income, followed by Union Excise Duties and Customs. As per the revised estimates, there is not a single tax that will meet its budget target this year.

While of the five major taxes, four taxes and duties – GST, Income Tax, Excise Duty and Customs – are set to be higher than the last year’s collection, the Corporation Tax will not only fail to meet the budget target but it will also decline below the last year's actual collection.

As expected, the decision to cut Corporation Tax to encourage private investment is set to make the biggest dent in the overall tax collection target.

And the Centre is set to receive just Rs 15.05 lakh crore (net to Centre) against the budget estimate of Rs 16.50 lakh crore, a sharp decline of Rs 1.45 lakh crore as per the revised estimates.

Nirmala Sitharaman had stated that her decision to cut the Corporation Tax will entail a revenue loss of Rs 1.45 lakh crore through the financial year ending in March 2020.

As per the revised estimates, it’s turning out to be true as the revised estimates given today suggest a massive decline of Rs 1.55 lakh crore just on account of decline in Corporate Tax collection.

In her maiden budget, Nirmala Sitharaman was bullish about Corporation Tax. She estimated that she will earn a record Rs 7.66 lakh crore from Corporation Tax alone this year as it was supposed to be the biggest source of Central government’s revenue, followed by GST (Rs 6.63 lakh crore) and Income Tax (Rs 5.69 lakh crore).

However, the Corporation Tax collection is set to decline even below last year’s collection when the Union government had received more than Rs 6.63 lakh crore.

In July 2019, the Finance Minister estimated that she will get Rs 7.66 lakh crore but now she only hopes to earn Rs 6.10 lakh crore in FY 2019-20, a decline of over 20% from her budget estimates.

Similarly, Income Tax Collection is also set to miss the budget estimate by Rs 10,000 crore this year.

Nirmala Siharaman projected Income Tax Collection to be Rs 5.69 lakh crore but now she has revised her estimate for Income Tax collection for this fiscal to just Rs 5.59 lakh crore.

However, she can take comfort that Income Tax Collection will at least surpass last year’s figure when it was Rs 4.73 lakh crore.

The same trend is visible in GST collections. According to the revised estimates, CGST and IGST collection are set to be Rs 6.12 lakh crore against the budget target of Rs 6.63 lakh crore, a decline of Rs 51,000 crore from budget estimates.

However, on the lines of Income Tax collection, the GST collection will also be higher than last year’s figure when it was more than Rs 5.81 lakh crore.

(Article by senior journalist Krishnanand Tripathi)