A recent CBDT press release has pegged the provisional direct tax collection figure for FY2022-23 to be Rs 6.48 lakh crore as on 8 September 2022, which is a whopping 35.46 percent higher than the gross collections for the last year’s corresponding period.

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What is noteworthy is that income tax refunds of Rs 1.19 lakh crore have also been made in the same period, which is 65.29 percent higher than last year, yet the net collection figure stands at Rs 5.29 lakh crore making it 30.17 percent higher than the corresponding figures for last year.

To put the numbers into perspective, India’s GDP growth rate for 2020 was -6.60 percent in 2020, which made a sharp rebound to +8.95 percent in 2021. The strong correlation between India’s tax collection and GDP numbers is indicative of how buoyant our tax collection is. India’s macro-economic indicators have generally seen a V-shaped recovery from the Covid period.

India’s indirect tax collection numbers have also been positive. GST revenues for July 2022 is 1.49 lakh crore, making it 28 percent higher than the GST revenue for the same month last year. A strong demand recovery can be inferred from such robust collection numbers.

There has also been significant improvement in the adoption of technology for tax reporting and monitoring, reducing the opportunity for tax evasion. For example, the Annual Information Statement (AIS) generated by the tax department now captures details of share trades, property sale, mutual fund investment, dividend, interest, rent income, cash deposits, withdrawals, etc. at never-before levels of intricacy. Intensive and extensive use of data analytics and artificial intelligence has not only discouraged misreporting of income but also eliminated instances of bona-fide omissions.

Further, India Inc’s push to regularize and formalize the tax reporting and compliances of Indian residents has been effective. 5.83 crore income tax returns have been filed till 31 July 2022 for AY2022-23, which is significantly higher than what it used to be not long ago. This in turn has improved the treasury’s overall collection figures.

One cannot ignore the impact of inflation on the rise in collection numbers. The Wholesale Price Index (WPI) has witnessed a two decade high of 15.9 percent in May 2022 and has been recording double digit numbers for 16 consecutive months. A rise in inflation has a direct correlation to rise in tax collection in nominal terms. Having said that, the inflation adjusted direct tax collection is still going to be a positive figure, which is reassuring.

The improvement in tax collection can also be seen a positive report card for the government’s policies. The government’s stance to eliminate tax holidays and incentives that was being availed by a select few and replacing the same with a reduced headline corporate tax rate (to as low as 17.16 percent) has been successful. This is because tax holidays were only claimed by industry behemoths who could afford the compliances, reporting and approval procedures that came along with such election. By reducing the tax rates, MSME taxpayers have benefitted whereas the tax collection from larger players have increased.

All-in-all, the upward trajectory in collection numbers (particularly in inflation adjusted terms) is indicative of a growing economy, rising demand and improved compliance and reporting. At this rate the FY2022-23 fiscal targets for tax collection seem achievable.

The author, Amit Singhania is Partner and Nimish Malpani is Senior Associate at Shardul Amarchand Mangaldas & Co.

First Published:Oct 25, 2022 5:27 PM IST