Direct tax collections in the first quarter of the current financial year were lower than anticipated, Kotak Institutional Equities said in a research note published on Thursday. The government had expected more people to disclose their hidden incomes and pay taxes on them, but data compiled by Kotak suggests that this did not happen.
Individuals and companies pay a number of taxes directly to the government based on their incomes and gains. In the April-June quarter, these tax collections grew a mere 8.5%, though the government had reported a 14.8% growth. While the Centre calculated is numbers on a after deducting the refunds due to taxpayers, or on a net basis, Kotak calculated tax growth on a gross basis, which includes refunds.
“We were hopeful about an uptick in tax revenues post demonetisation from higher declaration of unreported income,” the note said. “However, overall direct taxes grew around 8.5% (gross basis including refunds), which would suggest that the economic recovery is somewhat weaker versus expectations.”
The data also showed that tax paid by companies grew by merely 4.8%, suggesting lower profits, Kotak said, adding that this could be the result of demonetisation especially hurting smaller firms.
The collections of one form of direct tax – income tax – grew by 12.9% during the first quarter. This too was declared lower than expectations by Kotak’s research wing.
“We were hopeful about [the] higher declaration of unreported income after the demonetisation exercise, but it seems that the short-term negative impact of demonetisation was probably bigger and also, economic activity weaker in general,” the research note added.
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