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Last Updated : Jan 28, 2020 05:59 PM IST | Source: Moneycontrol.com

Amid consumption slowdown, Budget needs to set realistic revenue targets

For the April-November period, growth in overall tax collections was 0.8 percent at Rs 11.42 lakh crore.


In her maiden Budget last year, Finance Minister Nirmala Sitharaman had set a tax collection target of Rs 24.61 lakh crore, an increase of over 20 percent in its net tax collections.

The government has throughout the whole of last year maintained optimism on meeting the revenue target. Till as recent as on December, revenue department had held that the target would be achievable.

However, the government had already announced slashing of corporation tax in order to revive investment in a slowing economy. Sitharaman had said that the treasury will have to bear a burden of Rs 1.45 lakh crore.

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Ignoring the corporate tax burden, a slowing economy and declining consumption needs have made meeting the revenue target for the whole year an uphill task.

What do the numbers say

For the April-November period, growth in overall tax collections was 0.8 percent at Rs 11.42 lakh crore. In order to meet the budgeted target for 2019-20, tax collection needs to grow at 40 percent in the December-March period. In 2018-19 too the tax collection had fallen short of what had been budgeted for.

The Goods and Services Tax (GST) collection has been a sore thumb for the government. The collections have not been able to stabilize due to rate rationalisations and compliance hurdles, thereby upsetting the government's revenue math.

Centre's share in GST had been projected to grow to Rs 6.63 trillion, a growth rate of 13 percent. For the April-November period, the growth in collection has been about 4 percent.

A fall in GST collection doesn't only mess up the overall revenue kitty, but also upsets the compensation to states for shortfall in their collections.

The monthly GST collection target had been set at Rs 1 lakh crore in 2019-20. The government has been able to achieve that in five months till December. Collections from customs duty till November have fallen about 12 percent.

For 2019-20, Sitharaman pegged Rs 6.63 lakh crore GST collection, up from last year’s revised collections of Rs 6.43 lakh crore.

In the direct tax front, the government pegged a target for this year at Rs. 13.35 lakh crore, up 17.7 percent from last year’s collection of Rs. 11.34 lakh crore. It has been reported that the net direct tax collection has registered a shortfall of 5.4 per cent during April-January period of the current fiscal.

Since the inception of GST, the government has been betting on robust direct tax collections to offset losses from the indirect tax collections. But a cut in corporate tax would mean trouble for the government's direct tax mop up.

Fiscal math and growth targets

Limited buoyancy in tax collection and an economic slowdown have made the possibility of breaching the fiscal deficit almost obvious. The government had aimed to restrict the deficit at 3.3 percent of the gross domestic product (GDP). The government had originally planned to bring its deficit to 3 percent by 2017 and now it has been deferred to 2021.

The economic slowdown has also the slowdown in the economy has also played a role in messing up collection targets.

In her 2019-20 Budget, the finance minister had assumed a nominal GDP growth of 12 percent. India is now staring at the possibility of 2019-20 growth settling at around 7.5 percent. For the July-September quarter, India's GDP growth slumped to a 26-quarter low of 4.5 percent against a 7 percent growth a year ago.

The targets set in the Budget 2019-20 were on account of a higher nominal GDP, which in perspective, makes the targets unrealistic.

A consumption slowdown would now mean that the government will have to look at targets that would be achievable in 2020-21. The government is now staring at the possibility of two consecutive years of missing its tax collections.

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First Published on Jan 28, 2020 05:57 pm
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