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The Union government’s gross tax revenue has shown consistent growth over the years, with direct taxes outperforming indirect taxes in recent years. But a holistic view, combining both Union
and state tax collections, presents a different story. As per the total aggregate tax revenue, direct taxes account for less than 40 percent of India’s overall sum. In the FY2023 budget
estimates, in fact, direct tax collection was estimated at 16.42 lakh crore, while indirect tax was estimated at 29.08 lakh crore, as per the RBI _data_, pointing to India’s reliance on
indirect taxes. Direct taxes, known for their equitable nature, impose a lesser burden on the economically disadvantaged compared to indirect taxes, which impact poor individuals and
households more significantly. Even within the upward trajectory of direct tax collections by the centre, there has been a significant shift in its composition – between corporate and
personal taxes. Since the fiscal year 2023, personal income tax’s contribution to direct tax revenue has recorded an increase. The interim budget projections further indicated an increase
of 28.4 percent in personal income tax in FY2025 from last year's estimates, which put it at 52.57 percent of gross direct taxes, while the growth in corporate tax is estimated at 13.02
percent. While better compliance measures, adjustments in tax slabs, and technological innovations are driving the central government’s tax revenue through personal taxes, the growth of
corporate income tax has been sluggish. This is despite the significant reduction in corporate tax rates in 2019. The revenue from corporate income tax has not only fallen behind the
nominal GDP growth rate but is also showing a decrease in buoyancy. This indicates that the increase in corporate taxes has been outpaced by economic growth, underscoring a concerning trend
in tax revenue dynamics. But what’s working out for the governments and what’s not? Let’s take a look. GST AS PRIMARY DRIVER OF INDIRECT TAX COLLECTION Despite initial hurdles in design
and implementation, exacerbated by the impact of Covid-19 pandemic, GST has emerged as the primary driver of tax collection within indirect tax sources. While the initial hiccups meant that
GST revenue generation did not meet projections from FY2019 to FY2021, the end of the pandemic phase saw a resurgence in business activities, significantly boosting GST collections beyond
pre-pandemic figures. Notably, FY2022 emerged as a pivotal year for GST revenues, with CGST revenues surpassing budget estimates, a trend that continued in FY2023. The _Controller General
of Accounts_ reported a 13.25 percent increase in CGST collection up to December 2023 as compared to the previous year. Despite the promising trend observed in the first three quarters of
FY2024, suggesting a potential further improvement, the revised estimates are still kept in line with the initial budget estimates, reflecting a cautious approach towards revenue
forecasting. This approach, despite the recovery, suggests an underlying concern about potential underreporting.