The Ministry of Finance sought to allay concerns over fall in direct tax collection, and assured that the historic reforms will soon start showing results. The fall in direct tax collection is caused due to the historic tax reforms undertaken and a high number of refunds issued during the last fiscal, the finance ministry said in a statement. Therefore, the fall in revenue is on expected lines and temporary, it added. Manufacturing plants take time to get commissioned, and cannot start production immediately after the announcement of reforms, it said, adding that the result of tax reforms, announced in September 2019, will reap results in the next few months and in years to come, and thus the investment will pick up. However, it also added that the coronavirus pandemic may further delay this process but the growth in production due to these tax reforms is inevitable.
In the wake of a prolonged slowdown in India, the government cut the corporate tax rate for all existing domestic companies, announced an incentive for new manufacturing domestic companies, cut minimum alternate tax (MAT) rate, exempted individuals earning income up to Rs 5 lakh from income tax, and increased standard deduction. However, the government underlined that the revenue impact of these reforms is estimated at Rs 1.45 lakh crore for corporate tax and at Rs 23,200 crore for the Personal Income Tax (PIT).
The government collected Rs 7.69 lakh crore as corporate tax in FY 2018-19, which fell to Rs 6.78 lakh crore in FY 2019-20, and it collected Rs 5.28 lakh crore as personal income tax in FY 2018-19, which marginally rose to Rs 5.55 lakh crore in FY 2019-20. However, the adjusted gross collection estimated by including the revenue losses due to the tax reforms showed that the corporate tax collection rose 7.03 per cent on-year, while personal income tax collections grew 9.49 per cent on-year in FY 2019-20. Meanwhile, businesses and industrial activities slowed down in FY 2019-20 due to a major economic slowdown in the country.