The Indian government relies heavily on direct and indirect taxes to fund its various expenditures and programs. In the fiscal year 2023-24, the government expects to collect Rs 24.23 lakh crore from taxes, which is about 63% of its total revenue receipts of Rs 38.36 lakh crore.
Direct taxes are those that are levied on the income or profits of individuals and corporations, such as income tax, corporate tax, and capital gains tax. Indirect taxes are those that are levied on the production or consumption of goods and services, such as goods and services tax (GST), customs duty, and excise duty.
According to the budget estimates for 2023-24, the government expects to collect Rs 11.08 lakh crore from direct taxes and Rs 13.15 lakh crore from indirect taxes. This means that direct taxes account for 28.9% of the total revenue receipts, while indirect taxes account for 34.3%.
The share of direct taxes in the total revenue receipts has declined over the years, from 35.9% in 2016-17 to 28.9% in 2023-24. This is mainly due to the reduction in corporate tax rates from 30% to 22% for domestic companies and from 40% to 15% for new manufacturing companies in 2019. The government also introduced a new optional personal income tax regime with lower rates but fewer deductions and exemptions in 2020.
The share of indirect taxes in the total revenue receipts has increased over the years, from 30.8% in 2016-17 to 34.3% in 2023-24. This is mainly due to the implementation of GST in 2017, which subsumed various central and state indirect taxes into a single tax system. The government also increased the excise duty on petrol and diesel several times in the past few years to boost its revenues amid the economic slowdown.
The composition of direct and indirect taxes reflects the structure of the Indian economy, which is largely driven by consumption rather than investment or savings. However, some experts argue that relying too much on indirect taxes can be regressive and inflationary, as they affect the poor more than the rich and increase the cost of living. They suggest that the government should broaden the base and improve the compliance of direct taxes to make them more progressive and equitable.