Corporate tax collection jumps 34% in April-July this year, says Income Tax Department

Tax collected on income of companies surged by 34 per cent in the first four months of the current fiscal that began in April, indicating that a simplified tax regime with low rates is yielding results, the Income Tax Department said.

The tax department tweeted on corporate tax collection growth in April-July in an apparent attempt to counter criticism of the 2019 reduction in tax rates for companies which was alleged to have dented the Centre's revenue collections, impacting its spending on social welfare schemes.

The tax department said corporate tax collections at Rs 7.23 lakh crore in fiscal 2021-22 (April 2021 to March 2022) were 58 per cent higher than the mop-up in the previous financial year.

"The corporate tax collections during FY 2022-23 (till 31st July, 2022) register a robust growth of 34 per cent over the corporate tax collections in the corresponding period of FY 2021-22," it said without giving an absolute number for the collection.

Tax collections are one of the indicators of economic activity as higher income of companies suggest demand growth and wealth creation.

The department said the corporate tax collection in 2021-22 were higher by over 9 per cent when compared to collections of pre-COVID 2018-19 fiscal.

"The positive trend of growth continues (in current fiscal), but for the overall impact of the COVID-19 pandemic during FY 2020-21, when the corporate tax collections took a temporary hit," it said. "This indicates that the simplified tax regime with low rates and no exemptions has lived up to its promise."

In September 2019, the government had given companies the option to switch to a lower basic rate of 22 per cent from 30 per cent while foregoing all exemptions.

This led to a 16 per cent decline in corporate tax collections in 2019-20 to Rs 5.57 lakh crore. But the decline was about Rs 1 lakh crore and not Rs 1.45 lakh crore, as was feared at the time.

Tax collections in 2020-21 were hit due to the pandemic.

While the ruling BJP and Prime Minister Narendra Modi have launched a major offensive against freebies such as free electricity and water that they say lead to bankruptcy of a state, the Aam Aadmi Party (AAP) has in a counter offensive accused the ruling dispensation of giving doles to corporate in form of lower taxes and waiving off their loans.

The shrill debate on freebies comes before states like Gujarat go to polls. AAP is seeking to challenge the ruling BJP in the state with its Delhi model of development where consumption of electricity and water up to a certain level is free of charge. BJP seems to be against electoral promises made without considering the fiscal health of a state.