Data | Corporate tax cuts fail to spur investments\, revenue loss higher than expected

Dat

Data | Corporate tax cuts fail to spur investments, revenue loss higher than expected

Picture for representational purposes.   | Photo Credit: G.R.N. Somashekar

Gross tax revenue, corporate revenue record record big falls; investments plummet

Deep corporate tax cuts, announced in September last year, were aimed at spurring investments in the economy. The companies were expected to reinvest their profits.

However, latest data show that not only have investments gone down overall, but revenue fall due to the tax cuts have been steeper than expected.

Steep fall

The chart shows the year-on-year change in the gross tax revenue (GTR - in red) & corporate tax revenue (CTR - in blue) collected. In FY20*, GTR fell by ₹70,583 crore and CTR fell by ₹1,06,696 crore compared to FY19.

(GTR = CTR + income tax + Union excise duties + GST etc.).

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image/svg+xml Such falls in absolute revenues are rare +3 +2 +1 0 -1 -2 FY05 FY09 FY13 FY16 FY20 Change in ₹ lakh crore Some reports based on CMIE data show that this is the second such fall in the last six decades

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Gross overestimation

The chart below depicts the change in percentage points in actual GTR (red) and CTR (blue) collections compared to the revised estimates (RE) presented in Budget documents. The actual* GTR collected was 7.1% points and CTR was 8.8% points lower than the revised estimates presented in February.

Such levels of revenue overestimation were not seen in the last 15 years at least.

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image/svg+xml In FY19, too, the GTR was overestimated. The actuals were lower by 7.5% points FY05 FY09 FY13 FY16 FY20 5 0 -5 -10 Change from RE % points

Burden shift

The following chart depicts the income tax revenue (ITR , levied on individuals; firms other than companies) and CTR ( levied on companies) as a % of gross tax revenue. While until FY97, the share was exactly the same, the share of CTR surged between FY04 and FY13 while the share of ITR grew at a sedate pace.

Since FY13, the share of CTR has plummeted but ITR’s share continues to grow. Individuals paying income tax are carrying more of the tax burden in relation to corporates compared to the past

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image/svg+xml FY91 FY04 FY19 FY97 FY13 FY20 40% 30% 20% 10% 0% Income tax Corporatation tax
 

Investments go down further

The corporate tax cuts were expected to spur investments. But investments only further plummeted in the latest quarter. The graph below depicts year-on-year growth of Gross Fixed Capital Formation (GFCF), a measure of overall investment activity in the economy.

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image/svg+xml 15 10 5 0 -5 -10 Q1FY13 Q1FY16 Q1FY19 Q4FY20 GFCF y-o-y Instead of growing, the GFCF contracted every quarter, with the biggest contraction coming in Q4FY20, the latest quarter
 

Source: CAG (Provisional March figures*), Budget documents, MOSPI

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