Why collection of taxes at our highest record to England to India despite weak economic recovery

Indian tax collection for FY22 is apparently around Rs 2 trillion more than revised estimates, which in turn is Hospital 3 trillion which is better than expected budgeted last year. The fear of this final tax income is not surprising. I have written during the presentation of the FY23 budget that tax revenues for FY22 are being underestimated.

In fact, I think that even by estimating the estimated net tax revenue to the center in FY22 will be 19.3-20 trillion versus 17.65 trillion shown in revised estimates.

Now let’s try to analyze why the tax collection is on the note, when Indian GDP at the end of FY22 is likely to be only 1.8% more than output in March 2020, i.e. Two years ago. Let’s start by noting that high tax collection is experience in several other countries too.

In this attached piece, Justin Thirth and Alexandra Fall from Pew Amall Trustts showed that a collection of taxes more than half of the US state in the past year surpassed the collection they would make if they grow at pre-pandemic speed.

Closed Reuters reports also claimed that the Japanese tax collection for the year ended on March 31 was at a high record, far exceeding budget estimates. And recently, the attached British Government Ministry of Finance report showed that for the calendar of 2021 all tax heads – income tax, corporate tax and VAT grew between 17-30% in the past year.

So, what explains the collection of tax records from us to England to India to Japan, in a year that sees good recovery from a weak base, but economic growth in most countries does not cross their level will be obtained if they grow at pre pandemic speeds.

This must be the subject of investigating by researchers in the IMF and economists at global banks such as Citi and JP Morgan. Here are some possible reasons:

First, in all countries purchasing goods goes beyond the number of services for most calendars 2020 and 2021. In all countries it is easier to wear the entire chain of manufacturing items, while many informal services escape.

Second and more important, the past half year has seen increased inflation and inflation always increase nominal parameters. High product prices cause super-normal profits for metal companies, also for other product companies that can forward price increases. Also, customs collections in many countries, including India, rose because the nominal value of imports rose.

Third, large stimuli from many governments such as us, Britain, EU and Japan leads to pick up in global trade in 2021. India also reported a record export of $ 418 billion in FY22, because it also recorded imports of $ 610 billion. Both encourage the entire manufacturing ecosystem to produce higher tax collection.

In most countries, pandemics tend to strengthen the formal sector at the expense of the informal sector. K shaped recovery has become an upshot in many economics, with ultra loose monetary policies that conspire with the borrower’s process (which is usually less and richer) at the expense of savers (which are poorer and more).

While the curious case of a collection of tax taxes in the context of the sub-par economic recovery need to be thoroughly analyzed, the moot point is whether the tax collection will continue to grow in this fast clip.