Warning signs for fiscal maths as tax filing falls 1% in FY19

A relatively muted tax filing growth will create further headwinds in an already stressed fiscal space, the report said, adding the commitment of cash transfers in the budget can take the fiscal math on a "slippery slope" unless there is expenditure rationalisation.

Illustration: Uttam Ghosh/Rediff.com

The number of people filing income tax returns has declined by a full 1 per cent in fiscal 2019, despite the increased government focus to broaden the base, indicating a deepening slowdown in the overall economy, says a brokerage report.

It can be noted that the government has been pointing to the enlarged tax base as a benefit of the controversial demonetisation move it undertook in 2016, which had a debilitating impact on the economy.

Citing official data, a report by brokerage Kotak Securities said on Wednesday that only 66.8 million returns were filed in FY19 as against 67.5 million in the previous fiscal, which is down 1 per cent.

"This is surprising given that post-demonetisation, it was expected that the tax base would continue to increase," the note said and warned that such a happening is a worry from the fiscal math perspective.

The report warned that the falling tax numbers do not offer "much comfort" to the overall marco-economy, as this corroborates the fact that a number of economic activity indicators are signalling a slowdown in parts of the economy.

The report questions whether compliance was weaker in the latter part of FY19 and said it expects the new government will aim at increasing the filings and collections in FY20.

"The government needs to look at further expanding the tax base (optimally using the data repository from note-ban and GST). Without a significant improvement in the tax base, the medium-term growth path will be at risk," it warned.

The brokerage said there has been an increase in the filers in the higher income brackets and that data analytics will hold the key from here on.

A relatively muted tax filing growth will create further headwinds in an already stressed fiscal space, it said, adding the commitment of cash transfers in the budget can take the fiscal math on a "slippery slope" unless there is expenditure rationalisation.

It said the tax collections are not giving "much comfort", and just corroborate the fact that a number of activity indicators have been signaling a slowdown in parts of the economy.