Data | Corporate tax cuts fail to spur investments, revenue loss higher than expected

Deep corporate tax cuts, announced in September last year, were aimed at spurring investments in the economy. The companies were expected to reinvest their profits. However, latest data show that not only have investments gone down overall, but revenue fall due to the tax cuts have been steeper than expected.Steep fallThe chart shows the year-on-year change in the gross tax revenue (GTR – in red) & corporate tax revenue (CTR – in blue) collected. In FY20*, GTR fell by ₹70,583 crore and CTR fell by ₹1,06,696 crore compared to FY19. (GTR = CTR + income tax + Union excise duties + GST etc.).Viewing in app? Click to see graph

image/svg+xml

Such falls in absolute

revenues are rare

+3

+2

+1

0

-1

-2

FY05

FY09

FY13

FY16

FY20

Change in ₹ lakh crore

Some reports based on CMIE data

show that this is the second such

fall in the last six decades

Graph appears incomplete? Click to remove AMP modeGross overestimationThe chart below depicts the change in percentage points in actual GTR (red) and CTR (blue) collections compared to the revised estimates (RE) presented in Budget documents. The actual* GTR collected was 7.1% points and CTR was 8.8% points lower than the revised estimates presented in February. Such levels of revenue overestimation were not seen in the last 15 years at least.Viewing in app? Click to see graph

image/svg+xml

In FY19, too, the GTR was overestimated.

The actuals were lower by 7.5% points

FY05

FY09

FY13

FY16

FY20

5

0

-5

-10

Change from RE % points

Also read: 80% of urban workers lost jobs during coronavirus lockdown: surveyBurden shiftThe following chart depicts the income tax revenue (ITR , levied on individuals; firms other than companies) and CTR ( levied on companies) as a % of gross tax revenue. While until FY97, the share was exactly the same, the share of CTR surged between FY04 and FY13 while the share of ITR grew at a sedate pace. Since FY13, the share of CTR has plummeted but ITR’s share continues to grow. Individuals paying income tax are carrying more of the tax burden in relation to corporates compared to the pastViewing in app? Click to see graph

image/svg+xml

FY91

FY04

FY19

FY97

FY13

FY20

40%

30%

20%

10%

0%

Income tax

Corporatation tax

 Investments go down furtherThe corporate tax cuts were expected to spur investments. But investments only further plummeted in the latest quarter. The graph below depicts year-on-year growth of Gross Fixed Capital Formation (GFCF), a measure of overall investment activity in the economy.Viewing in app? Click to see graph

image/svg+xml

15

10

5

0

-5

-10

Q1FY13

Q1FY16

Q1FY19

Q4FY20

GFCF y-o-y

Instead of growing, the GFCF contracted

every quarter, with the biggest contraction

coming in Q4FY20, the latest quarter

 Source: CAG (Provisional March figures*), Budget documents, MOSPI

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