India’s tax burden shifted from boardrooms to petrol pumps throughout Covid-19

The preliminary collection of gross tax receipts (GTR) by the Union government was £20.24 lakh crore in the period 2020-21. That’s a little more than that £20.1 lakh crore collected in 2019-20. India’s nominal GDP declined by 3% annually in 2020-21. It is an impressive statistic that the Union government has managed to increase its income despite a decline in GDP.

An HT analysis shows that this otherwise impressive performance was achieved through a disproportionate shift in the tax burden on the poor. In fact, the corporate sector now bears the lowest tax share in more than a decade. This came at a time when corporate profits have risen sharply and inequality and poverty have risen. If it is not reversed, such a regressive development of the Indian tax burden will have detrimental consequences for mass demand and thus for growth.

How did the centre’s GTR outperform 2019-20 in 2020-21?

The devil is in the details. All major tax authorities (corporate tax, personal income tax, customs, goods and services tax and Union excise taxes), with the exception of customs and Union excise taxes, recorded lower levels of collection in 2020-21 compared to 2019-20. In absolute terms, only the excise tax collections made the difference. Year-on-year, corporate tax receipts saw the largest decrease, while Union excise taxes saw the largest increase. The Union excise tax is the only tax head where the actual surveys have even exceeded the budget estimates in the Union budget presented on February 1, 2020.

Also read | Prices are rising again: gasoline is 4.09 / l more expensive, diesel is changing £4.65 / lt since May 4th

This is the result of a sharp increase in taxes on gasoline and diesel. This hike was imposed by the crash in crude oil prices but is still in effect. Between March and May 2020, the central government increased excise duties per liter of petrol and diesel by a total of 65.7% ( £13) and 101% ( £16) or from the one prevailing before March 14, 2020.

The majority of taxes on gasoline and diesel are paid by the poor

It may sound absurd, but it is the poor, not the rich, who pay more of the taxes on gasoline-diesel. An article in this newspaper dated March 2021, based on a survey conducted by Nielsen for the Ministry of Petroleum in January 2014, contains estimates of end-users of gasoline-diesel. The summary results of the story are worth reproducing here.

Let’s say the government won 100 rupees each from taxes on gasoline and diesel. The end-use data shows that 60% (i.e. £60) of this total tax levied on gasoline was paid by the two-wheeler owners while only £37 was paid for by the car owners. In the case of diesel, the data suggest that for 100 rupees won through taxes, £13 is paid by agriculture while commercial vehicles (including buses and trucks) have paid £38 of the total increased taxes. This is inevitably passed on to the under-rich, who use it for public transport or through increased transport costs of goods. Private car owners would have paid £28.5 in taxes.

Income taxes had the lowest proportion of the total tax basket since 2009-10

The share of corporate tax collections – taxes on corporate profits – in the GTR in 2020-21 is the lowest since 2009-10. 2009-10 is the earliest period for which detailed tax data is available in the Center for Monitoring Indian Economy (CMIE) database. If the budget estimates are for 2021-22, this number will improve slightly: from 22.6% to 24.7% between 2020-21 and 2021-22. But it won’t return to previous levels.

The decline in the proportion of corporate tax collections in the year is likely due to a drastic cut in corporate tax rates announced in September 2019. the rate has been reduced from 25% to 15% unless they claim exemptions.

A cut in tax rates creates tailwinds for retained earnings that flow to the rich. Of course, most of India’s income tax revenue also comes from statistically rich Indians. However, the fact that income tax collections declined significantly less than corporate tax collections in 2019-20 and 2020-21 (see Chart 1) shows that property owners outperform their employee prices when it comes to taxes.

Lower tax rates were icing on the corporate income

A standard business story based on an analysis of the Capitaline database states that the combined net income of publicly traded companies rose 57.6%. has risen £5.31 lakh crore in the period 2020-21. As a result, the corporate profit share of GDP hit a ten-year high of 2.63%, compared to a record low of 1.6% in 2019-20. Profits rose in 2020-21, although revenues fell as companies managed to cut the cost of both raw materials and wages. This is what many experts refer to as for-profit recovery.

The overwhelming majority of Indians suffered a decline in income as the pandemic devastated the economy. “In April 2021, only 4.2 percent of households said that their income was higher than a year ago, and only 5.2 percent said that they expect their income to increase in a year,” it says in one Article posted by Mahesh Vyas, General Manager of CMIE on the CMIE website. “These proportions were 33 percent and 30 percent in 2019-20,” the article says. The really rich seem to have escaped this predicament, and taxation policy has supported the process.

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