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Direct returns
August, 23rd 2007
By any yardstick, a 44 per cent jump in direct tax collections in the first five months of 2007-08 is more than commendable.

The latest data on tax collections once again validate the premise that the government stands to benefit more by letting loose growth impulses across the width of the economy rather than casting tax nets on particular segments of taxpayers. For decades, the Finance Ministry worked on the principle that high tax rates on salaries and corporate profits, a cumbersome machinery and, at the same time, large exemptions, would ensure buoyant revenues. For years, the fiscal regim e was marked by leakages and tax evasion and a randomly punitive administration that proved retrogressive in its overall effects. Better sense has prevailed in the recent past and the results are evident in the latest data for the period April-August of the current financial year.

By any yardstick, a 44 per cent jump in direct tax collections in the first five months of 2007-08 is more than commendable, coming as it does on a 40 per cent increase in the corresponding period last fiscal. The latter was considered the best performance in two years; that the revenue flows have crested earlier records is evidence that the money-tightening measures have yet to impact the economys take on whats good for it. Mercifully, North Block is modest enough to recognise the singular effect of robust economic growth turning many more citizens obliging taxpayers. But simplified procedures, electronic conveniences have also helped in easing tax filings. Just how much the potent mix of growth and hassle-free procedures can help is manifest in the tax revenues over the last six years. In 2000-01, direct taxes for the Centre and states totalled Rs 80,947 crore with indirect tax revenues at Rs 2,24,683 crore. Since then direct tax collections have galloped at a faster clip, trebling by 2006-07 with indirect taxes just doubling. Overall, the buoyancy in tax collections already a fifth of budget estimates within the first quarter of 2007 has eased the revenue deficit even further with a healthy influence on government finances. According to the Reserve Banks latest Bulletin, Plan expenditure has contracted by some 20 per cent, but there has been a pick-up in capital expenditure that should transmit positive investment signals.

Robust direct tax collections to date should not lull North Block into easing up on indirect tax reforms. The alacrity with which the states and the Centre through the Special Economic Zones and tax breaks for backward-area investments hand out tax exemptions litters the passage to a domestic common market with uneven handicaps. With indirect taxes devolving more on states, a common indirect tax regime is imperative to sustain the growth story and government revenues.

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