Indirect tax collections have seen an uptrend at the start of the current fiscal and are likely to rise further this year, offsetting the weakness in direct tax receipts as also helping fiscal consolidation targets, says a DBS report.
According to the global financial services major, a sharp jump in the indirect tax collections kick-started the fiscal 2016-17 on a positive note, even as direct tax receipts are likely to lag in the coming months.
A host of measures were introduced last year to lift indirect revenues, which included an increase in fuel excise duties, higher service tax rate, cleanliness cess and boost from a bounce in base prices of fuel products.
These measures increased the share of indirect tax collections to 49 percent last year.
“We expect this to rise further this year, which will help offset the weakness in direct tax receipts and buffer the annual fiscal consolidation targets,” DBS said.
Indirect tax collections for April, jumped 41 percent y-o-y helped primarily by higher excise receipts.
In contrast, direct tax collections are expected to miss last year’s targets. As a percentage of GDP, direct tax made up 5.4 percent of GDP last year, down from over 6 per cent in fiscal 2007-08.
“Along with the impact of an unfavourable investment climate, the need to improve tax efficiency, expand tax base, widen tax net and better enforcement remain long-standing concerns,” the report noted.
Beyond the short-term fiscal math, focus will be on improving direct tax collections, as these are more equitable in nature, the report said.
Introduction of the goods and services tax, as and when passed by the parliament, will meanwhile streamline and improve the efficiency of the indirect tax structure, it added.