India’s tax pie seems to have undergone a subtle change with a sharp drop in direct tax collections resulting from a disproportionate impact of the COVID-19 carnage on incomes.
The share of indirect taxes, which mainly comprise of levy on goods and services as well as import duty, has risen while that of direct taxes – made up of corporate and personal income tax – has gone down in 2020.
In an interview with PTI, Finance Secretary Ajay Bhushan Pandey said in a pandemic like this where the economy has been impacted, any large scale changes impact direct taxes more severely, whereas indirect tax collection is mostly proportional to business turnover and compliance.
“In a situation like this where the economy has been impacted and we are on the recovery path, the direct taxes are impacted more severely because the profitability of a company is not directly proportional to the turnover always. If your turnover reduces below a certain benchmark then the profit will not merely reduce, but it may get into a negative zone and therefore the company may not pay any income tax as it will be into a loss.