It is an annual ritual to seek tax relief, exemptions and incentives from the finance minister before presentation of the annual budget. The expectations of tax favors are particularly stronger in election years, as taxpayers and market participants are led by the belief that the government may be gratuitous to allure voters. There is however no empirical evidence of any correlation between the direct tax regime and government populism. The fact is that the population that is materially affected by direct tax laws is not significant to the election outcome.
The recently released Direct Tax Statistics by the Central Board of Direct Taxes (CBDT) shows that income taxpayers in India may not be a group of interest from a general election view point. For example, consider the following points evident from the said statistics:
No. of taxpayers: In AY23 only 8.91crore individuals paid some income tax (including TDS) in India. This is less than 10% of the total eligible voters in India. Though this year details have not been provided, from past year’s statistics it is clear that more than two thirds of these individuals have income less than Rs5.50 lacs, which is almost tax exempt. The population seeking income tax relief/incentive is about 2-3% of the voter base. This segment of the voters is also not particularly known for their commitment to voting.
Tax payer regional dispersion: During AY23, the government collected Rs8.26 trillion as corporate tax and Rs8.33 trillion as personal income tax. Four states (UP, Bihar, MP and West Bengal) which account for almost 40% of population accounted for only 7% of tax payment. Excluding NOIDA and Kolkata which may account for significant corporate tax, the personal income tax collections in these states would be of little relevance for elections.
Maharashtra with 9.5% population accounted for over 36.4% of tax collection. However, it would be interesting to see the picture excluding Greater Mumbai and Pune jurisdictions. Delhi accounted for 1.4% of population and 13.3% of tax collection.
The broader picture thus is that 50% tax collection happens from states having less than 10% population (that too mostly from 3 cities Delhi, Greater Mumbai and Pune) and 10% tax collection happens from states with over 40% population (including likely major contributions from NOIDA and Kolkata).
Direct Tax to GDP ratio highest: FY23 recorded a direct tax to GDP ratio of 6.11%, highest on record. Tax growth rate is consistently higher than the nominal GDP growth rate since FY17 (financial year 2015-16). FY22 witnessed the best tax buoyancy factor (tax growth to GDP growth) of 2.52 since FY03 (2.59).
Taxes growing faster than GDP: Between FY14 and FY23, direct tax collection has registered a growth of 11.2% CAGR, total tax collection has grown at 11.6% CAGR; whereas nominal GDP has grown at 10.2% CAGR only. Some part of higher tax collection could be attributed to enlargement of tax base; but the incidence of tax has also increased.
Trend to continue: The tax collection trends witnessed in the recent years are likely to persist in future also. There are about 66.3 crore PAN numbers allotted in India. Out of this presently only 8.91cr pay tax (including TDS) and 7.4cr people file income tax return. The administrative effort is to bring more PAN allottees to the tax net. The share of TDS in total tax collection has increased from 34.4% in FY14 to 41.5% in FY23. This shall also increase in future.
In short, if you are a taxpayer and hoping for any favor from the finance minister today, you might be disappointed.
