Telltale signs of economic recovery as corporate tax to GDP ratio cross 3% for the first time in FY22

After a hiatus of two years, corporate tax receipts in 2021–2022 exceeded 3% of the GDP, suggesting an improvement in India Inc.'s profitability as a whole, driven by a rise in demand for goods and services. The corporate tax collection has not yet surpassed the 3.51 percent of GDP mark set in 2018–19, which was a five-year high.

Optimistic Tiding for the Indian Economy , pick-up in demand for Goods and Services & improved India Inc profitability due to surge in Corporate Tax collections

In actual dollars, Rs 7.12 lakh crore was collected in net corporation tax in 2021–22. At the current market pricing, the Gross Domestic Product (GDP) was about Rs 236.64 lakh crore. 3.01 percent was the calculated ratio of net corporate tax to GDP. The ratio was highest in 2018–19, according to a study of five years' worth of data on corporate tax collection as a percentage of GDP. 3.51 percent of GDP or Rs 6.63 lakh crore was collected in net corporation tax.

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2018-2019: Benchmark year for corporate tax collection as a proportion of GDP, reveals that the ratio peaked in that year

Due to a decrease in the corporate tax rate, the mop up and ratio decreased to 2.77 percent of GDP in 2019–20. The government lowered corporation tax rates for new manufacturing units by nearly 10 percentage points, the largest decrease in 28 years, in an effort to boost investments.

28 year lowdown for Indian Economy as mop up and ratio slipped to 2.77 per cent of GDP in 2019-20 on account of reduction in corporate tax

A new domestic firm that is incorporated on or after October 1, 2019, and makes additional investments in manufacturing will have the option to pay income tax at the rate of 15% if they begin production on or before March 31, 2023, the government stated while lowering the tax rate in September 2019. The time frame was later extended till March 2024 by one additional year.

Additionally, domestic businesses had the choice to forgo tax breaks and incentives in exchange for paying taxes at a lower 22 percent rate. Additionally, the Minimum Alternate Tax (MAT) rate was also lowered from 18.5% to 15%.

Corporate tax realisation in 2019–20 decreased to approximately Rs 5.56 lakh crore as a result of the tax reform (2.77 per cent of GDP). Due to the combined effects of Covid-19 and tax rate reductions from the prior year, the corporate tax to GDP ratio decreased further the next year, in 2020–21, to 2.31 percent. Over Rs 4.57 lakh crore in net corporate tax revenue was collected.

The Budget estimates that gross corporate tax receipts for the current fiscal year will total Rs 7.20 lakh crore (before accounting for refunds). Net corporation tax receipts for the current fiscal year as of mid-December were Rs 6.06 lakh crore.

While the updated estimates of corporation tax collection for this fiscal will be disclosed in the Budget, which will be delivered on February 1, the advance estimates of GDP for the current financial year will be provided on January 6.

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