IANS | 07 May, 2024
In the midst of a political maelstrom, where the Congress and its
cohorts spun tales of fiscal folly, data and facts reveal the real,
upbeat picture.
Contrary to their narratives set on various social
and micro-blogging platforms that the Narendra Modi-led government had
pared corporate tax in a hot-haste manner which had no benefit for the
Indian economy and that personal tax has overtaken corporate tax, the
move was not just a flash in the pan; it was a clarion call to stoke the
fires of investment in the manufacturing sector, a cornerstone of the
Modi government’s ‘Make-in-India’ campaign.
New companies born
after October 1, 2019, with eyes on manufacturing, were handed a golden
ticket - a chance to pay income tax at a mere 15 per cent, provided they
kept clear of exemptions and got their gears turning by March 31, 2023,
a deadline with whispers of an extension to 2024.
The bulls on the stock market doffed their hats to this audacious move.
On
the day of the announcement, the Sensex leapt by 5.3 per cent, its most
significant single-day rally in a decade, and the ascent continued with
a 3 per cent rise when the markets opened the following Monday.
In
September 2019, the Modi government’s move to whittle down the base
corporate tax from a hefty 30 per cent to a svelte 22 per cent,
sidestepping the usual budgetary beats and setting the stage for a
streamlined tax regime. This move was nothing short of slicing through
the Gordian knot, unravelling the complex jumble of taxes that had
businesses in tangles.
The Congress and INDI Alliance, perhaps
blindsided by their own narratives, seemed oblivious to the fact that
this pivot from the norm was designed to grease the wheels of commerce
and that it was the corporate giants who had previously feasted on tax
breaks under the United Progressive Alliance (UPA), while the common
taxpayer now found favour under the Modi administration.
The move
later came to its organic fruition; the corporate tax cut of 2019
unfurled a trifecta of benefits; Indian corporate tax rates now stood
toe-to-toe with global contenders, and the leaner tax rate cut the fat
from the required rates of return, enticing firms to invest more, and
the trimmed tax rate plumped up firms’ cash reserves, sparking a spree
of capital expenditures.
The tax cuts' immediate aftermath was
veiled by the Covid pandemic’s global upheaval. Yet, hindsight reveals a
clear picture as analysts agree that this fiscal sleight of hand has
buffed the shine of the Indian economy. This is evidenced by the swell
in Foreign Direct Investment (FDI) from USD 36 billion in 2013-14 and
registered its highest-ever annual FDI inflow of $85 billion in the
financial year 2021-22.
Since the Modi government moved to fiscal consolidation in 2019, the figures paint a rosy picture of the Indian economy.
Personal
income tax collections, with the Securities Transaction Tax (STT) in
tow, ballooned to Rs 12.01 lakh crore for the fiscal year 2023-24,
marking a hearty 24.26 per cent increase. Net personal income tax
collections, STT included, swelled by 25.23 per cent to Rs 10.44 lakh
crore.
Tax refunds, too, saw a generous uptick, swelling by 22.74
per cent to Rs. 3.79 lakh crore, a clear sign that the tax coffers were
brimming. The tax collection figures were a testament to the Indian
economy’s brisk pace. The interim budget revealed a robust 17.70 per
cent year-on-year leap in net direct tax collections, climbing to Rs
19.58 lakh crore for the fiscal year 2023-24, up from the previous
year’s Rs 16.64 lakh crore.
Before any refund adjustments, the
fiscal year’s gross direct tax collections stood at a commendable Rs
23.37 lakh crore, an 18.48 per cent growth over the previous year’s Rs
19.72 lakh crore.
Corporate tax collections also enjoyed a healthy
boost, with gross revenues reaching Rs 11.32 lakh crore, a 13.06 per
cent increase from the previous year. The net corporate tax collections
reflected a 10.26 per cent growth, standing at Rs 9.11 lakh crore. The
initial budgetary forecast for direct tax revenues was pegged at Rs
18.23 lakh crore, later revised to Rs 19.45 lakh crore.
The provisional tallies outpaced both the original and revised estimates by 7.40 per cent and 0.67 per cent, respectively.
The
narrative of income tax collection in India is a tale of prosperity and
compliance; the recent surge in collections is more than just
numbers—it’s a reflection of an expanding tax base, burgeoning
prosperity, and heightened compliance.
Dissecting this narrative
through an economic lens, we find encouraging data. The exponential
increase in income tax returns filed by individuals -- from 3.8 crore in
2014 to nearly 8.18 crore in 2024 -- paints a vivid picture of a
burgeoning tax base underpinned by prosperity.
As prosperity
blooms, more individuals climb the income ladder, entering the income
tax bracket. The middle class, in particular, has seen a significant
uplift, with the Modi government’s policy allowing zero tax liability
for annual incomes up to Rs 7.5 lakh, empowering them as key
contributors to the nation’s fiscal health.
The Weighted Mean
Income Trajectory, according to SBI Research, tells a compelling story.
Over the past decade, the weighted mean income has nearly tripled --
from Rs 3.1 lakh in FY 2014 to an impressive Rs 11.60 lakh in FY 2021,
highlighting India’s economic vibrancy and upward mobility.
Lastly, the Congress and its allies seem to have misjudged the corporate versus individual tax contributions.
Globally,
the distribution of tax revenues between corporate and individual
sectors varies significantly. In OECD countries, corporate taxes make up
a modest 9.8 per cent of total tax revenue, while individual taxes
contribute a substantial 23.9 per cent. In the US, corporate taxes
account for a mere 5.1 per cent of tax revenue, whereas individual taxes
form a significant 41.1 per cent. This pattern underscores the pivotal
role played by personal taxes in funding public expenditures. In India,
the trend aligns with global patterns.
Corporate tax revenues,
while important, occupy a smaller share of government coffers compared
to individual taxes. The irony of the political discourse surrounding
tax cuts is palpable. Critics from the Congress-led INDI Alliance have
lambasted business-friendly tax policies. However, empirical evidence
paints a different picture. Under the UPA regime, most tax breaks
favoured corporations, perpetuating a skewed distribution. In contrast,
the Modi government’s focus on individual incentives has borne fruit,
with taxpayers -- individuals and middle-class households -- reaping
greater benefits from targeted tax relief measures.
India’s income
tax landscape reflects not only fiscal dynamics but also societal
progress. As the tax base expands and prosperity flourishes, the nation
stands poised for continued economic growth, driven by the collective
contributions of its citizens. In anticipation of the upcoming general
elections, the Modi-led government’s provisional budget champions
infrastructural enhancement while charting a course of fiscal prudence.
This measured fiscal stance, free from the trappings of populist
spending, signals the BJP’s confidence in securing a third consecutive
term for a nation of 1.4 billion citizens.