Corporate tax to GDP ratio exceeds 3% after two years in fiscal 2022 | spcilvly

Corporate tax collection crossed 3 per cent of GDP after a gap of two years in 2021-22, reflecting an overall improvement in India Inc’s profitability driven by rising demand for goods and services.

However, corporate tax collection is yet to surpass its five-year high of 3.51 per cent of GDP recorded in 2018-19.

In real terms, the net corporate tax collection in 2021-22 was Rs 7.12 lakh crore. The Gross Domestic Product (GDP) at current market price was Rs 236.64 lakh crore. The percentage of net corporate tax on GDP was found to be 3.01 percent.

An analysis of five-year data on corporate tax collections as a percentage of GDP showed that the ratio was the highest in 2018-19. Net corporate tax collection stood at Rs 6.63 lakh crore or 3.51 per cent of GDP.

Cleanliness and ratio fell to 2.77 per cent of GDP in 2019-20 due to reduction in corporate tax rate. In the biggest reduction in 28 years, the government cut corporate tax rates for new manufacturing units by almost 10 percentage points, aiming to stimulate investment.

While reducing the tax rate in September 2019, the government had said that any new domestic company incorporated on or after October 1, 2019, making new investments in manufacturing, will have the option to pay income tax at the rate of 15 percent if they started production on March 31, 2023 or before. The period was later extended for another year until March 2024.

Additionally, domestic companies were given the option to pay taxes at a lower rate of 22 percent if they gave up exemptions and incentives. In addition, the Minimum Alternative Tax (MAT) rate had also been reduced from 18.5 percent to 15 percent.

The tax cut was reflected in corporate tax realization in 2019-20, when the collection fell to over Rs 5.56 lakh crore (2.77 per cent of GDP).

Next year, in 2020-21, the corporate tax to GDP ratio declined further to 2.31 per cent due to the combined impact of Covid-19 and the previous year’s tax rate cuts. The net corporate tax collection was over Rs 4.57 lakh crore.

In the current financial year, the Budget has pegged the gross corporate tax collection (before adjusting refunds) at Rs 7.20 lakh crore.

In the period from April to mid-December of the current fiscal, the net corporate tax collection stood at Rs 6.06 lakh crore.

Advance estimates of GDP for the current financial year would be released on January 6, while revised estimates of corporate tax collections for this financial year will be revealed in the Budget to be presented on February 1.

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