Increase in tax-burden on India's GDP may hit consumption and savings
Published On: Monday, May 11, 2020 | By: Team KnowMyStock
The latest increase in indirect taxes on commodities like diesel, petrol, and alcohol by the central and various state governments is likely to lead to a further rise in the tax burden on India's Gross Domestic Product (GDP). In FY19, indirect taxes (net of subsidies) accounted for nearly 10 percent of GDP, up from 9.3 percent a year ago and a low of 6.1 percent in FY10. This, say, economists, will negatively impact household disposable income and may hit consumer demand and savings and investments by the household. Disposable income is the portion of GDP that accrues to households that they consume, save, or invest. If it grows slower than the overall GDP or declines, households will either cut back on consumption, or savings & investments, or both," says experts.
According to various estimates central government can earn up Rs 1.7 trillion in additional tax revenues from diesel and petrol in FY12 besides additional revenue mop-up by state governments.
Against this, India’s GDP is expected to either decline marginally or stay stagnant according to various estimates depending on the extent of the Covid-19 lockdown.
In the last five-years, indirect taxes such as excise, customs and Goods & Service tax net of subsidies has grown at a much faster pace than the growth the country's Gross Domestic Product (GDP). The trend is similar in case of direct taxes such as personal income tax and corporate income tax.
Others fear that such a high taxation on transport fuel will raise logistics costs for firms hurting the competitiveness of the manufacturing sector in the country. “Diesel prices – the key transport fuel – in India are one the highest in the word which make goods transport very expensive. How will an Indian manufacturer be globally competitive if energy costs are 3-4X that of competition?” asks industry experts.
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