Recently, income tax e-filers in FY2019 have decreased by more than 6.6 lakh. This has come as a surprise for the analysts as the predictions were of increase in number of e-filers post demonetization. According to statistics put out on Income Tax Department's e-filing website, income tax e-filings in FY 2018-19 was 6.68 crore and were 6.74 crore in FY 2017-2018. E-filers as recorded in FY 2016-17 were 5.28 crore. "If the filings are indeed plateauing, it will be a worry for the fiscal which has seemingly shifted its focus to compensatory expenditure," a report out on 30 April by Kota Economic Research stated. "Tax filings have surprisingly plateaued in FY2019. This is surprising given that post demonetisation it was expected that the tax base would continue to increase." However, it has been seen that the number of registered filers have been on the rise as they grew by 15 percent to 8.45 crore as on 31 March, 2019, according to the e-filing website. Comparatively, registered filers were just 2.7 crore at the end of March 2013 to 5.2 crore in March 2016 and to 6.2 crore in March 2017. In signs of lower compliance, the ratio of actual filings to registered filers was 79 percent in FY2018-19, down from 91.6 percent in the previous fiscal. The compliance ratio was 85 percent and 83 percent in the preceding two years. It was 79.3 percent in FY2014-15, which was a decline from 82 percent of FY2013-14.
There has been a steady rise in the filers in the Rs 5 lakh to Rs 10 lakh range with 1.05 crore filings in FY2018-19 including 1.02 crore of individual taxpayers. Kotak said the declining e-filings "does beg the question whether compliance was weaker in the latter part of FY2019 given that the number of registered filers has continued to see steady growth." "If compliance has been weak, the new government will aim at increasing the filings and collections in FY2020," it said. "A focused utilization of the data on deposits during demonetization could yield better compliance, especially in the higher income brackets." This combined with the granular Goods and Services Tax (GST) filing data will be essential in increasing the filings as well as revenues over the next few years, it said. "The task is cut out for the next government looking at improving the tax buoyancy, essential to fund the increasing transfers in expenditure." It said that while it is hoped that the filings for the assessment year increase (around August when filings are completed), a relatively muted tax filing growth will create further headwinds in an already stressed fiscal space. "With the recent inception of direct transfers in the budget, the fiscal could easily be on a slippery slope unless there is a rationalization of expenditure," it said. Given the stressed fiscal space, debt markets are burdened with heavy government and PSE (public sector enterprises) borrowings, which are likely to keep the yield curve steep in FY2020, it added.
"Aggregate indirect tax revenues' buoyancy has been weak along with targets being missed on direct taxes too. Further, persistently high borrowing cost for financial institutions and companies (given crowding out by the government sector) will weigh on the near-term aggregate demand in the economy," it further added. From a medium-term perspective, if the government does not expand its capital expenditure (higher transfers and muted tax growth), the growth prospects will be under doubt given estimated fiscal multipliers, the research stated.