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Gross direct tax collections collection falls over 30% in Q1FY21

Gross direct tax collections collection falls over 30% in Q1FY21

Gross direct tax collections collection falls over 30% in Q1FY21
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By Timsy Jaipuria  Jun 17, 2020 2:30:47 PM IST (Updated)

The gross advance tax collection in the first quarter of the current fiscal declined over 30 percent due to the coronavirus-induced nationwide lockdown, sources told CNBC-TV18.

Not coming in as a surprise to the government, the first-quarter gross direct tax collections received by the central board of direct taxes (CBDT), have seen over 30 percent decline, government sources told CNBC-TV18.

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Hit by lockdown, the collections were expected to show a declining trend as both large and small taxpayers are estimating limited profits.
However, these are just initial estimates, and there could be some corrections in a day or two, as the last date to file first-quarter advance tax was June 15. Banks are still updating the final figures, given that a lot of advance tax filing also happens through physical challans and banks take time to update those numbers to the government.
Here is a detailed reading
of the gross direct tax collections so far as per North Block sources:
Direct Tax2020 (In Cr)2019 (In Cr)Change
Gross1,37,8251,99,755Down 31%
Net92,681136,941Down 32.3%
Advance Corporate828639405Down 79%
Advance Personal34289512Down 64%
Experts too feel that the decline in collections was expected.
"As expected, the advance tax numbers would be hit due to the reduction in the tax rate as well as a severe business downturn. More importantly, reduction in advance tax shows that the companies foresee the entire year to remain stressed rather than merely for the first quarter of this financial year," says Amit Maheshwari, partner, AKM Global.
However, these provisional numbers continue to pose serious challenges for North Block, as finance ministry aims to clock Rs13.2 lakh crore of direct tax collections this fiscal.
On an analysis of the advance tax collections people in the know said, "the government has noted that both small and large taxpayers have seen over 30-40 percent decline in their profits, this a corresponding decline is what the government has observed in the advance tax collections,"
When it comes to dividend distribution tax (DDT) and securities transaction tax (STT)  there is a small surprise. Unlike other readings, there is an uptick in the latter's collection as seen in the table below.
Tax2020 (In Cr)2019 (In Cr)Change
DDT10234093Down 75%
STT2,5682262Up 13.6%
But, is COVID-19 only to be blamed for the poor performance? Experts feel otherwise. Already tax collections were reportedly declining from last year onwards.
Hitesh Gajaria, partner and co-head of tax at KPMG India, said that "the fall in tax collections in Q1 of FY 2020-21 is not really surprising since the country was in a near-complete state of lockdown for a bulk of the quarter. Having said this, direct tax collections have been seeing a shortfall since last year itself. The original direct tax collection target for FY 2019-20 of Rs 13.3 lakh crore was revised downwards to Rs 11.7 lakh crore, and the actual collections during the year ended up even lower at around Rs10.27 lakh crores."
Gajaria also added, " this trend is due to a variety of factors, including the significant corporate tax cuts enacted last year, the uncertainty in the economic environment, and the deferral of the Vivad se Vishwas dispute resolution scheme from March 2020 to June, and then to December 2020. More particularly, the beneficial impact of the corporate tax cuts will be experienced over the medium term once capacity building and consumer demand pick up. What was hoped is that the rise in Economic Activity and consumption will more than compensate for the tax given up owning to the lower headline corporate tax rates. This assumption will now come under some strain in the COVID-19 Scenario. The fall in tax collections in this quarter is driven by a drop in advance tax payments by corporates."
"This will make it challenging for the government to meet this year’s targeted direct tax collection of Rs. 13.2 lakh crores. Since advance tax computations are based on estimated profits for the year, this drop reflects the lower forecasts of economic activity in the first quarter due to the lockdown, as well uncertainty about profitability for the year ahead," Gajaria added.
However, government sources did say that it is too early to mark that such low collections will continue throughout the year. "If the pandemic is contained in time and the economy picks up then the government can get close to the estimated targets." Even experts are also the same opinion.
Shailesh Kumar, Partner, Nangia & Co LLP feels that the "decline in advance tax collections is on expected lines, both because of reduction in estimated profits/ earnings of taxpayers and also on account of liquidity crisis being faced by businesses in present circumstances.  Many taxpayers, who would expect a revival of business and profits in subsequent quarters, might have deferred advance tax payment to subsequent quarters merely on account of a liquidity crisis.  If economic activity improves and businesses start functioning close to usual, then one may expect this deficit to be covered in next installments of advance tax due in September/ December 2020."
Similar optimism is opined by Gajaria. He too adds that "this is not necessarily reflective of what will actually happen in subsequent quarters. What will be crucial is how quickly businesses are able to revive, and how soon consumer demand picks up. This is assuming that there no more crippling lockdowns re-emerge owing to the pandemic."
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