Direct tax-GDP ratio rose to 15-year high in FY23, tax buoyancy dipped

Direct tax-GDP ratio rose to 15-year high in FY23, tax buoyancy dipped

Subject :Economy

Section: Fiscal Policy

Context:

• Direct tax-to-GDP ratio, which reflects the share of taxes in the overall output generated in the country, rose to a 15-year high of 6.11 per cent in the financial year 2022-23.

More on news:

• The data was  released by the Central Board of Direct Taxes (CBDT) under the Ministry of Finance.
• As per CBDT, a taxpayer is a person who either has filed a return of income for the relevant assessment year (AY) or in whose case tax has been deducted at source in the relevant financial year but the taxpayer has not filed the return of income.

Key findings by the ministry

• Tax Buoyancy:
  • The tax buoyancy i.e. the growth rate of taxes in relation to the economy’s nominal growth rate  declined to 1.18 in 2022-23 from 2.52 in 2021-22 and 1.29 in the pre-Covid year of 2018-19.
  • Tax buoyancy had improved to 2.52 in 2021-22 due to a low base effect.
  • Tax buoyancy inched lower to 1.18 in 2022-23 even as the growth rate for taxes was recorded at 17.79 per cent in 2022-23, higher than 15.11 per cent nominal GDP growth.
• Tax collections:
  • Net direct tax collections  “increased by 160.52 per cent to Rs 16.63 lakh crore in FY 2022-23 from Rs 6.39 lakh crore in FY 2013-14”.
  • Gross direct tax collections stood at Rs 19.7 lakh crore in FY 2022-23 which is  a rise of 173.3 per cent from Rs 7.21 lakh crore in FY 2013-14.
  • On a year-on-year basis, net direct tax collections increased by 17.8 per cent, while gross direct tax collections rose by 20.5 per cent.
• Number of Taxpayers:
  • While the number of persons filing income tax returns increased to 7.4 crore in the financial year 2022-23(6.3 percent rise from FY22), out of which 6.97 crore were individuals.
  • In the previous financial year 2021-22, while tax return filers stood at 6.96 crore (with 6.55 crore individuals), overall taxpayers stood at 9.37 crore — a gap of 2.41 crore — showing that a significant number of taxpayers are getting taxed through measures such as TDS but are not filing income tax returns.
• State Wise tax collections:
  • Among states and union territories, Maharashtra accounted for 36.4 per cent (Rs 6.05 lakh crore) of the overall direct tax collections in the country in the financial year 2022-23, followed by Delhi at 13.3 per cent (Rs 2.22 lakh crore), Karnataka at 12.5 per cent (Rs 2.08 lakh crore) and Tamil Nadu at 6.4 per cent (Rs 1.07 lakh crore).
  • These four states accounted for 68.6 per cent of the overall direct tax collections in FY23.
• Cost of tax collection:
• The cost of tax collection which  indicates the expenditure on tax collection as a proportion of the total tax collections has inched lower to 0.51 percent in FY23 (the lowest level since 2000-01), but it increased in absolute terms to Rs 8,452 crore which is the highest level since 2000-01.