Deutsche says digital currencies could be mainstream
India's direct tax collection set to fall after two decades
India's corporate and income tax collection for the current year is likely to fall for the first time in at least two decades, several senior tax officials told Reuters, amid a sharp fall in economic growth and cut in corporate tax rates.
"This will be the first time that we'll see a fall in direct tax collection ever," said a tax official in New Delhi. Prime Minister Narendra Modi's government was targeting direct tax collection of 13.5 trillion rupees ($189 billion) for the year ending March 31 - a 17 per cent increase over the prior fiscal year.
But a sharp decline in demand has stung businesses, forcing companies to cut investment and jobs, denting tax collections and prompting the government to forecast 5pc growth for this fiscal year - the slowest in 11 years.
The tax department had managed to collect only 7.3 trillion rupees as of Jan 23, more than 5.5pc below the amount collected by the same point last year, said a senior tax official. After collecting taxes from companies in advance for the first three quarters, officials typically garner about 30-35pc of annual direct taxes in the final three months, data from the past three years shows.
But eight senior tax officials interviewed by Reuters said despite their best efforts, direct tax collections this financial year were likely to fall below the 11.5tr rupees collected in 2018-19.
He estimates that direct tax collections for this year could end up roughly 10pc below fiscal 2019. The finance ministry did not immediately respond to requests for comment. Direct taxes typically account for about 80pc of the government's projections for annual revenue, and the shortfall may leave the government needing to boost borrowing to meet expenditure commitments.
The tax officials also say that a surprise cut in the headline corporate tax rate last year aimed at wooing manufacturers and boosting investment in Asia's third-biggest economy is another reason behind the sluggish tax collections.
"We'll be very happy if we can even break even with what we collected last year," said another senior tax official in the financial capital, Mumbai, the biggest tax generator, accounting for about a third of revenues from direct taxes.
"But given the state of the economy, I'm not too hopeful."
The concerns are exacerbated by a gaping shortfall in the goods and services tax (GST) that is expected to further hurt total collections.
The total tax collection shortfall for the current fiscal year could be about 3 trillion rupees - the highest shortfall ever recorded. "With revenue sources stretched, we're not assuming any rise in the capex bill in FY21," Pranjul Bhandari, chief economist at HSBC in India, said in a note.
A digital currency could see widespread adoption within the next few years, a new report by Deutsche Bank suggests.
The Deutsche Bank report said digital currencies, while only a decade old, have already been shown to have the "potential to radically change payments, banking, central banking and the balance of economic power."
"We believe a new digital currency could become mainstream within the next two years," according to the report, with both China's digital yuan initiative and Facebook's Libra project expected to launch this year. The report said that could make digital currencies available to more than 1.5 billion Chinese citizens and 2.5 billion Facebook users - combined, more than half of the world's population.
At its current adoption rate, cryptocurrencies are running parallel to the internet during its early years, the report reads. Should this continue, there could be more than 200 million blockchain wallets by 2030, up from the 50 million in 2020.
The report is the third in Deutsche Bank's series that examines the future landscape for payments. As the first paper highlights, many existing cryptocurrencies, such as bitcoin, are too volatile to be used as a viable means of payment or as a store of value. The second in the series indicated the inherent benefits of cash mean it would endure as a payments method possibly for decades to come.
Although many of these same sentiments are echoed in the third paper, researchers also highlighted that digital currencies could combine the convenience of electronic payments with the privacy of cash payments. In the case of central bank digital currencies ( CBDCs), they present new solutions for dealing with problems systemic in the global economy.
If CBDCs were fully rolled out, Deutsche Bank said, central banks could make interest- bearing accounts available to every citizen. That could "resolve many problems caused by the current fractional reserve banking system," the report reads, and commercial banks would not be "vulnerable to bank runs": governments would not be forced into a position where they have to bail out the "too big to fail" institutions as they had to do in 2008, researchers said.
As part of its research, Deutsche Bank surveyed 3,600 bank clients. Although restricted to a smaller percentage of the population, the report noted a "stark contrast" in attitudes between older and younger respondents.
While a larger share of the older generation had never held cryptocurrencies or understood how they worked, the report found a "large majority" of millennials - those born between 1981 and 1996 - had already traded cryptocurrencies and believed they would be beneficial for the overall economy.
Deutsche Bank said in 2017 the opportunities presented to businesses by blockchain technology were "huge," predicting as much as 10 percent of global GDP could be tracked or regulated using the blockchain by 2027. In September 2019, the bank joined the Interbank Information Network ( IIN), a blockchain- based payments initiative that uses JPMorgan's JPMCoin stablecoin.