Sunday, July 04, 2021

Why are they celebrating when we feel hopeless?

"The provisional revenue and expenditure figures for the Union government for 2020-21 show that "its collection of indirect taxes were more than of direct taxes, and personal income tax collection exceeded corporate income tax collection. Both are unwelcome," wrote Prof VA Nageswaran. The government has massively increased taxes on petrol and diesel, so that taxes account for over 60% of the price paid by consumers, ORF. "Indirect taxes (excise, customs and goods and services tax) are like direct taxes on production," Mint. "Indirect taxes keep the cost of production up, thus reducing the growth of incomes accruing to factors of production. In the process, tax collection through direct taxes also suffers." Goods and services tax (GST) collection in April 2021 reached a record Rs 1.414 trillion, UNI, after a record collection of Rs 1.24 trillion in March, IIFL Securities. Collections in May 2021 fell slightly to Rs 1.02 trillion but this was the eighth consecutive month when it was more than Rs 1 trillion, moneycontrol. "Commendable work has been done in the year gone both in the area of facilitation and enforcement. The enhanced revenue collection in recent months should now be the 'new normal'," said Finance Minister Nirmala Sitharaman ominously, Times of India (TOI). She seems to be setting targets for tax officials and encouraging tax terrorism, Rajat Deb, on individuals and businesses to achieve those targets, however unrealistic and extortionary they maybe. "For instance, TDS (tax deduction at source) deduction is duty of the organisation that is making payments to invoices raised by service/goods provider. The payee gets paid post TDS deductions, thus should not be penalised or harassed by authorities when the deducting organisation does not deposit the same or delays it," wrote Vijay Kumar Gupta. "One of the biggest challenges that the Covid-hit economy faces at the moment is dwindling demand -- a factor that could delay India's economic recovery for a longer period after the second wave. There are several reasons behind falling demand during the second wave, ranging from lower consumer footfall, weak consumer sentiments and mobility restrictions due to localised lockdowns in most parts of the country," India Today. According to a survey by the RBI, consumer confidence in India has fallen to new lows. "The current situation index fell to a record 48.5 in May from 53.1 in March, according to the Reserve Bank of India's (RBI) consumer confidence survey, where 100 divides pessimism from optimism," Economic Times (ET). Essential spending was "showing signs of moderation while non-essential spending continues to contract". "Households' median perception for the current period jumped by 150 basis points to 10.2% while the inflation expectation for three months rose 70 basis points to 10.8%, compared to March 2021 survey, the RBI said. Median inflation expectations for one-year ahead also remained at an elevated level at 10.9%." If consumers are pessimistic and spending less how did the private final consumption expenditure (PFCE) rise sharply to near Rs 34 trillion in the first quarter of 2021 from below Rs 24 trillion at the end of 2020, OECD.  PFCE fell 9.1%, from Rs 83.2 trillion in 2019-20 to Rs 75.6 trillion in 2020-21, while government final consumption expenditure (GFCE) 2.91% from Rs 15.41 trillion to Rs 15.86 trillion, moneycontrol. If people are spending less how are GST collections, which accrue only when people buy goods or services, soaring so dramatically? "Against the revenue neutral rate of 15.3% which was recommended by the Arvind Subramanian Committee, weighted average GST has been falling continuously and was just 11.6% in July and September 2019," wrote Roshan Kishore. The current effective tax rate is around 11.8%, Hindustan Times. If people are buying less and rate of GST has fallen, how is the total collection hitting record levels? Since GST is a percentage of the price, prices must have risen massively. That will hit consumer spending even more. They are hitting us when we are down. Doesn't make sense, does it? 

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