The great Indian tax paradox: Can the tax mop-up keep its pace in the current fiscal?
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The great Indian tax paradox: Can the tax mop-up keep its pace in the current fiscal?By
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Synopsis
Augmenting tax collection is critical. If the pandemic continues, pro-poor schemes will need more resources. Ramping up the heath infrastructure to prepare for a third wave will also need money.
Agencies
Taxes collected from smaller firms are recorded in the personal income tax category alongside those from individual taxpayers.
Simple financial wisdom would tell you when an economy shrinks, tax collection falters. When the contraction is unprecedented amid a crushing global pandemic, the fallout on tax revenue should be devastating. But India bucked this trend in the last fiscal year. In the Covid-hit, bruised FY 2020-21, the central government mopped up an additional tax revenue of Rs 67,133 crore, a 4.9% rise y-o-y, according to data released by the Controller General
This will be the biggest annual contraction in records going back to 1952, according to Bloomberg. The estimate by the NSO was close to the Reserve Bank of India’s estimate of 7.5 per cent contraction. Economy trackers had estimated annual real GDP growth to be in the range of negative 6.5 to negative 9.9 per cent. Nominal GDP will contract by 4.2 per cent, the release showed. As tax revenue grows in consonance with nominal GDP, revenue stress could be of a magnitude that is closer to this number. Advance estimates are important as the Union Budget uses these numbers for assuming GDP growth rates at current prices for the next financial year, on the basis of which all crucial numbers such as the fiscal deficit and tax numbers will be calculated.