Aim at returning to tax-GDP ratio of 12%: Chidambaram

Even as the outlook on the economy continues to remain bleak, Finance Minister P Chidambaram is hopeful that the direct tax collection target for the current fiscal will be achieved.

Addressing the media, Chidambaram today said that the government is aiming to regain the tax-GDP ratio of 12%. Gross direct tax collection in April-July in FY13 rose 4.68% to about Rs 1.39 lakh crore, from Rs 1.32 lakh crore in the corresponding period last year. What is more worrying factor is decline in the growth in corporate tax collection which fell by 1.5% during the first four months of the fiscal. Indirect tax collection during April-July showed an increase of 22% against annual target of 27%. Direct Taxes Code needs fresh look: Chidambaram
The FM is worried that the slowdown in GDP may impact tax collection. A dismal GDP growth of 5.5% during April-June only snapped a losing streak that lasted eight consecutive quarters. The outlook is bleak and grim as gross capital formation, private consumption and services sector growth, all continued to decline. Economists are worried that a continued slowdown in the economy could eventually trigger a sovereign rating downgrade.
According to a report by brokerage house Morgan Stanley, growth in both personal tax and corporate tax collections for the financial year till July have decelerated but are well above budget estimates.
The bigger problem for the government will be to keep fiscal deficit under check. Fiscal deficit for the financial year till July has already touched 51.5% of the Budget Estimate, up from 37.4% at the end of June.
"We believe slow economic growth along with continued acceleration in government spending will lead to an increase in the fiscal deficit vs. the government’s budget estimate. Moreover, persistently high international oil prices and the government’s inability to hike domestic fuel prices are resulting in a much higher than budgeted oil subsidy burden for the government as well as government-owned oil companies,” the Morgan Stanley note said.
Meanwhile, Chidambaram assured that 'tax dept will be friendly and there is no need to harbour unnecessary fear.' The FM also added that there will 'non-adversarial' approach to tax collection. He is expecting final report on tax anti-avoidance by Sep-end.