TAG: GS 3: ECONOMY
THE CONTEXT: India’s Revenue Secretary has projected a record high tax-to-GDP ratio of 11.7% for the fiscal year 2024-25.
EXPLANATION:
- This surge is attributed to a focus on direct taxes, perceived as more ‘equitable,’ with ongoing efforts to simplify the tax structure, minimize disputes, and enhance enforcement efficiency.
Direct Taxes and Rationalization Efforts
- Equitable Direct Taxes:
- Revenue Secretary emphasizes the importance of direct taxes in driving the anticipated increase in the tax-to-GDP ratio.
- Recent reductions in corporate and personal income taxes aim to create a more balanced and taxpayer-friendly regime.
- New Tax Regime:
- The introduction of a new tax regime, devoid of deductions but offering a higher tax-free income threshold, is expected to attract a significant number of income taxpayers.
- The growth in Personal Income Tax collections stands at an impressive 28% year-to-date, with a projected moderation to 20%-22% by the fiscal year-end.
Goods and Services Tax (GST) Considerations
- Rate Structure Review:
- The GST Council, responsible for reviewing the rate structure, has been reconstituted, indicating ongoing efforts to rationalize GST rates.
- Small adjustments to rationalize rates on various items remain a continual focus within the Council.
- Quarterly Meetings:
- The GST Council is expected to convene quarterly, providing a platform for ongoing discussions on tax-related matters.
Tax-to-GDP Ratio Projections
- Historic High Projection:
- Revenue Secretary anticipates the tax-to-GDP ratio to reach an all-time high of 11.7% in 2024-25, building on the 11.6% recorded in the current year and 11.2% in 2022-23.
- The surge is primarily attributed to a rise in direct taxes from 6.1% of GDP in 2022-23 to 6.6% in the current year and a further increase to 6.7% in the next fiscal year.
- Economic Growth Impact:
- As the economy expands and per capita income rises, the tax-to-GDP ratio is expected to grow, aligning with the experiences of other countries.
- The projection reflects India’s developmental trajectory, with an emphasis on sustaining tax revenue growth.
Revenue Growth Projections and Corporate Tax Insights
- Buoyancy and Growth Projections:
- Acknowledging the cyclicality of revenue buoyancy, a shift from a 1.4 buoyancy this year to a projected 1.1 buoyancy in 2024-25 has been noticed.
- The anticipation is for tax revenues to grow at 11.5% fueled by a nominal GDP growth of 10.5%.
- Corporate Tax Landscape:
- Companies availing the 15% corporate tax rate for new manufacturing units, ending in March 2023, will be revealed in next year’s tax returns.
- About 57% of corporate tax income is currently filed at the reduced rate of 22%, introduced in 2019 for firms not opting for deductions.
Regulatory Oversight and Enforcement
- Money Laundering Concerns:
- The Revenue Department does not examine lapses at Paytm Payments Bank, but the Enforcement Directorate steps in when money laundering issues arise, enforcing legal consequences for any flouting of the law.
Conclusion
- Revenue Secretary insights provide a comprehensive view of India’s tax landscape, showcasing efforts to balance tax structures, promote equitable taxation, and project a robust tax-to-GDP ratio.
- Ongoing reforms, coupled with prudent fiscal management, position India for sustained economic growth and revenue enhancement.