Centre tries to allay concerns over lower collections, lagging investments

In a bid to allay the concerns over falling direct tax collections and slower rate of investments in the country despite the recent tax reforms, the Finance Ministry on Sunday said that the fall in direct tax collections is temporary and a result of reform measures and tax benefits.

In a statement, the ministry said that there are reports in a section of media that the growth of direct taxes collections for FY 2019-20 has fallen drastically and buoyancy of the direct tax collections compared with the GDP growth has reached negative.

It said that the reports "do not portray the correct picture regarding the growth of direct taxes".

It noted that although the net direct tax collections for FY 2019-20 was less than the net direct tax collections for FY 2018-19, this fall is on expected lines and temporary only due to the "historic" tax reforms undertaken and much higher refunds issued during FY 2019-20.

"This fact becomes more apparent if we compare the gross collections (which removes anomalies created by the variation in the amount of refunds given in a year) after taking into account the revenue foregone estimated for the bold tax reforms undertaken, which have a direct impact on the direct tax collections for FY 2019-20," it said.

The ministry also said that in FY 2019-20, the total refunds were Rs 1.84 lakh crore compared with Rs 1.61 lakh crore in FY 2018-19, a 14 per cent increase year-on-year.

As per the government, steps such as corporate tax rate cut for all existing domestic companies, incentive for new manufacturing domestic firms, reduction in MAT rate and IT exemption for individuals earnings income up to Rs 5 lakh caused a revenue impact of Rs 1.45 lakh crore for corporate tax and Rs 23,200 crore-hit in the personal income tax (PIT) collections.

Regarding the slow pace of investments despite the tax reforms, the Finance Ministry statement said that the assertion that investments have not been picking up is "not correct and is without appreciation of the reality of the business world".

The setting up of new manufacturing facilities requires various preliminary steps like acquisition of land, construction of factory sheds, setting up of offices and other infrastructures, among others, and these activities cannot be completed in just a few months, and manufacturing plants cannot start operations immediately after announcement of reforms, said the ministry.

"The tax reforms were announced in September 2019 and the results are expected to be visible in the next few months and in the years to come. The outbreak of COVID-19 may further delay this process but the growth in production due to these tax reforms is bound to happen and cannot be stopped," it said.

The Finance Ministry added that the government is committed to provide a hassle-free direct tax environment with moderate tax rates and ease of compliance to the taxpayers and also to stimulate the growth by reforming the direct taxes system.

It also outlined some of the recent steps taken in this direction, including reforms in personal income tax, abolition of dividend distribution tax (DDT), and schemes to resolve tax disputes, among others.

( With inputs from IANS )