Revenue Secretary Says 57% Corporate Tax Coming From New Regime

The adoption of the new tax regime has emerged as a topic of significant interest, and remains so considering the government refrained from sweetening the direct tax rates to encourage more adoption.

On the heels of the Finance Minister's presentation of the 2024 interim budget, Revenue Secretary Sanjay Malhotra spoke to NDTV Profit on Friday on the trends he sees in terms of revenue collection, the impact of the new tax regime on corporate taxes, the collections of windfall taxes and much more.

With the new tax regime becoming the default income tax regime option from assessment year 2025, which corresponds to FY24, the adoption of the new tax regime among corporates has seen a considerable uptick, according to Malhotra.

"We have 57% of the revenues from corporate tax now coming from the new regime, which is the 22% (tax) scheme. The figures pertaining to new tax regime adoption under personal income tax, however, will be known only next year," Malhotra said.

Revenue collection, particularly on the personal income tax front, have outstripped the pace of growth of corporate taxes, prompting concerns on whether corporate taxes are slowing down and personal taxes are pulling the additional weight.

Till the end of December 2023, the government has collected Rs 7.21 lakh crore in corporate taxes, net of refunds. The government, in its revised estimates, retained the projected collection for corporate taxes at Rs 9.22 lakh crore, unlike personal taxes which saw a 13.5% revision from Rs 9 lakh crore (FY24 budget estimates) to Rs 10.22 lakh crore (FY24 revised estimates).

"...there is no slowdown in terms of why personal income taxes is doing better. It is not really a case of slowing down of the corporate taxes but it is more a case of improved tax collection efficiencies, better tax compliance by our taxpayers and the (number of) taxpayers because of which you see that now the personal income tax numbers are more than the corporate tax numbers," he said.

Malhotra said the pace of growth in personal income taxes is due to a combination of factors from better use of compliance to better sourcing of data through technology.

"Primarily, I think it's the benefits we are getting for the hard work that has been done in the last five years. It's not just one year of work that is giving us this kind of result," he said.

Introducing updated returns has helped the department gain about Rs 4,600 crore, adding to the results that the department is seeing for its work on improving taxpayer experience, he said.

After much debate and discussion, in 2023, the Goods and Services Tax Council decided on 28% levy on online gaming at the deposit amount on entry point, which was implemented from Oct. 1, 2023.

After four months of implementation and three months of revenue collection, the government is seeing a five-times hike in the revenue from this sector, according to Malhotra.

"We now have revenue collection for three months. Which is October paid in November, December and January ... and so in these three months, we have got a revenue of Rs 3,470 crore. In comparison, in the last three months preceeding Oct. 1, we got revenues of only Rs 605 crore. So, this is a jump of five times and we now hope to get a revenue of about Rs 13,000-14,000 crore if we are able to maintain the same pace."

When geopolitical conflict first began across the Black Sea in Ukraine, the subsequent distruption caused an imbalance in availability and pricing of crude petroleum, necessitating the levy of windfall gain taxes.

The tax, known as the special additional excise duty, aimed at curbing the substantial profit of a particular industry owing to unprecedented events, has also contributed to the government's collection on excise duty.

According to government estimates, last year, the government received revenue closer to Rs 26,000 crore. However, in the current fiscal, owing to lower crude prices, the collections might be halved.

"...so we expect only about 50% of the revenues (received last year) and that is one of the reasons why you see that the excise duty collections are lower than what they were last year," Malhotra told NDTV Profit.

Going against the grain, the government did not extend the concessional tax rate of 15% for new manufacturing units, that is due to end in March this year.

Explaining the rationale, Malhotra said that a sufficient window was given for the scheme since it began in 2019 on the back of the Covid-19 pandemic.

He noted that the corporate tax rates now (at 22%) are more competitive with that of economies of comparable size. And lastly tax, he said, was just one factor in the investment decision against the number of "supportive steps" that the government has taken over the last five years.

In terms of the series of notices received by taxpayers from the GST department in 2023, Malhotra said they are not final assessment orders, but he hopes state departments will adopt a "risk-based approach" when it comes to tax scrutiny in the future.

"...going forward, (I hope) they try to adopt a risk-based approach for issuing notices and doing scrutinies, so that the number of assessments are manageable, and if they are manageable, then the quality of the assessment is also better. There is more likelihood then that those demands that come out will fructify into actual revenue and not end up in litigation."