De-growth in Net Tax Revenue Impacted the Fiscal Deficit
The fiscal deficit is a crucial indicator of a country’s economic health. It is the difference between the government’s total expenditure and its total revenue. A high fiscal deficit can lead to inflation, increase in interest rates, and a decrease in the value of the currency. On the other hand, a low fiscal deficit indicates a healthy economy and a stable government. In recent years, India has been struggling with a high fiscal deficit, and one of the major reasons for this is the de-growth in net tax revenue.
Net tax revenue is the amount of tax collected by the government after deducting refunds and other adjustments. It is a significant source of income for the government, and any decrease in it can have a significant impact on the fiscal deficit. In the financial year 2020-21, India’s net tax revenue saw a de-growth of 9.3%, which is the steepest decline in the last two decades. This de-growth has been a major contributor to the increase in the fiscal deficit, which is estimated to be around 9.5% of the GDP.
There are several factors that have led to the de-growth in net tax revenue. The first and most significant factor is the economic slowdown caused by the COVID-19 pandemic. The lockdowns and restrictions imposed to contain the spread of the virus have severely impacted businesses and individuals, leading to a decrease in their income. This, in turn, has resulted in a decrease in their tax liability. The pandemic has also led to a decrease in consumer spending, which has affected the government’s indirect tax revenue.
Another factor contributing to the de-growth in net tax revenue is the government’s decision to provide relief to taxpayers by extending the deadline for filing tax returns and reducing the interest rate on delayed payments. While this move has been welcomed by taxpayers, it has also resulted in a decrease in the government’s tax revenue.
The decrease in net tax revenue can also be attributed to the government’s efforts to boost the economy by providing various tax incentives and exemptions. These measures have resulted in a decrease in the government’s tax collection, but they have also helped in reviving the economy and creating a positive sentiment among businesses and individuals.
The de-growth in net tax revenue has also been impacted by the government’s decision to reduce corporate tax rates. In September 2019, the government announced a significant cut in corporate tax rates, which was aimed at attracting more investments and boosting economic growth. While this move has been beneficial in the long run, it has resulted in a decrease in the government’s tax revenue in the short term.
The decrease in net tax revenue has also been a result of the government’s efforts to simplify the tax structure and make it more taxpayer-friendly. The introduction of the Goods and Services Tax (GST) was a significant step towards achieving this goal. However, the implementation of GST has faced several challenges, leading to a decrease in the government’s indirect tax revenue.
The de-growth in net tax revenue has undoubtedly impacted the fiscal deficit, but it is essential to note that it is a temporary setback. The government’s efforts to revive the economy and boost tax collection are expected to yield positive results in the coming years. The recent increase in economic activity and the gradual recovery of businesses and individuals’ income are expected to lead to an increase in tax revenue.
The government has also taken several measures to increase tax compliance and curb tax evasion, which will help in increasing the net tax revenue. The introduction of faceless assessment and faceless appeals is a significant step towards achieving this goal. These measures will not only increase tax compliance but also reduce the burden on taxpayers and make the tax system more transparent and efficient.
In conclusion, the de-growth in net tax revenue has impacted the fiscal deficit, but it is a temporary setback. The government’s efforts to revive the economy and boost tax collection, along with the recent increase in economic activity, are expected to lead to an increase in net tax revenue in the coming years. The government’s focus on simplifying the tax structure and increasing tax compliance will also help in achieving this goal. As the economy continues to recover, we can expect to see a decrease in the fiscal deficit and a healthier economic outlook for the country.
