InvestorQ : How have the tax collections been in fiscal 2020 and how do you see these numbers in the fiscal year 2021?
Katherine Gonsalves made post

How have the tax collections been in fiscal 2020 and how do you see these numbers in the fiscal year 2021?

Answer
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Rutuja Nigam answered.
3 months ago


One way to measure the efficacy of tax collections is the tax to GDP ratio (Tax/GDP). That has faltered to a multi-year low of 9.88% in fiscal 2020. This was due to a sharp fall in GST, customs and corporation tax. The ratio of tax to GDP was 10.97% in FY19 and at 11.22% in FY20. The slump in earnings was largely driven by the sharp cut in corporate taxes which actually shaved off Rs.145,000 crore from the government coffers. Things are only likely to become tighter in the next few quarters. The slump in economic activity since the last week of March would imply that the impact overall could be much worse in fiscal year 2021. The big challenge from the budget estimates perspective is that is that tax revenues will have to grow at over 21% YOY to be able to achieve the tax revenue target of the government for FY21. With falling income levels and low production levels, the collections of corporate tax, income tax, GST and even customs is likely to falter this year. There is expected to be a bounce in the second half of the fiscal year but that may not be sufficient. However, if the GDP also contracts then this ratio may not look too unflattering.