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Last Updated : Feb 14, 2020 06:57 PM IST | Source:

Government's ambitious tax mop-up target for FY20 makes FY21 goal daunting

According to data available with the Controller General of Accounts, net tax collection till December-end stood at Rs 13.83 lakh cr or about 64 percent of the revised estimate.

After projecting an ambitious revenue collection target in 2019-20, Finance Minister Nirmala Sitharaman said that Budget 2020-21 has projected realistic figures and targets.

The figures presented in the Budget pivots around the assumption of modest tax collection target for 2020-21. The Budget assumes a 12 percent growth in overall tax collections, going by a nominal GDP growth of 10 percent, against 7.5 percent estimated in 2019-20. In 2018-19, nominal GDP growth was estimated to be over 11 percent. Ratings agency Moody has put India's GDP growth at around 8.7 percent in the next financial year, and a real GDP growth of 5.5 percent. The Economic Survey pegged FY21 GDP growth at 6-6.5 percent.

Experts, however, believe the government's estimate is 'optimistic.' "This growth number seems to be a bit on the optimistic side, given the real GDP growth continue to moderate and inflation is expected to cool-off below 4 percent in the second half of 2020-21 as food inflation spikes moderate and a high base effect kicks-in," according to a report by HDFC Bank.


An analysis of the tax collection numbers tell a different story. The actual collections in at least the last two years have been lower than the estimates.

Optimistic Revised Estimate target

The prevailing conditions of an economic slowdown led to weak tax collection coupled with a significant cut in corporate tax in 2019, Budget 2020-21 revised downwards the gross tax revenue (GTR) estimate from Rs 24.61 lakh crore in the Budget Estimate (BE) of 2019-20 budget to Rs 21.63 lakh crore in the Revised Estimate (RE) for this fiscal year, a 12 percent increase over the RE.

In 2019-20, GTR slowed down due to lesser-than-anticipated GST collections and a reduction in corporate tax rates, according to the Budget document.

The actual GTR receipts for 2018-19 was Rs 20.8 lakh crore, lower than what was estimated in the BE and RE. GTR in the BE was Rs 22.7 lakh crore and Rs 22.48 lakh crore in the RE.

According to the data available with the Controller General of Accounts, net tax collection till December end stood at Rs 13.83 lakh crore or about 64 percent of the revised estimate. This makes the task to achieve even the RE makes it hugely challenging as the government would have to collect the remaining 40 percent in taxes in the remaining three months of the current fiscal.

Direct taxes

For corporate tax, the RE has projected it would contract 8 percent in 2019-20. Corporate tax collections have been on a declining trend since the announcement in September of a cut in tax rates to 22 percent from the earlier 30 percent. Collections in the first nine months of the year contracted 13.6 percent on year. For the remaining three months of the fiscals, the government assumed a growth of 2 percent in corporate tax collections. Collections, on an average, have contracted about 35 percent on year in the months following the announcement.

On the personal income tax front too, the government has put its bet on the Vivad se Vishwas scheme to recover money stuck in tax disputes and thereby bumping up the collection. The government has told the Parliament as of March 31, 2019, Rs 9.53 lakh crore are stuck in disputed income tax claims at different stages of appeal.

For 2019-20, the Budget proposes a revised growth target in personal income tax collection of 18.3 percent, even though the actual collection rate grew by 5.1 percent in the first nine months of the current fiscal. Collections need to grow at a pace of more than 40 percent in the last quarter to achieve the target.

According to the 2019-20 RE, income tax collection has been pegged at Rs 5.59 lakh crore, down from Rs 5.69 lakh crore in the BE.

“Direct tax collections are budgeted to grow 12 percent in 2020-21, compared to 4 percent this fiscal This is despite the Rs 4,000-crore loss in revenue expected from the reduction in income-tax cuts,” a research note by Abheek Barua, Chief Economist, HDFC Bank said.

Indirect taxes front

The Budget assumes a growth rate of 5.1 percent in indirect tax collections for 2019-20. The collection in the first nine months has grown at 0.1 percent. To achieve the RE projections, the government must retain a growth rate of almost 19 percent in the last quarter.

On the indirect tax front as well, the Centre is banking on the collection from the Sabka Vishwas-Legacy Dispute Resolution Scheme, 2019.

The scheme allowed taxpayers to settle pending disputes under the erstwhile Service Tax and Central Excise, now subsumed under the Goods and Services Tax. According to the provisions of the scheme, taxpayers could pay their outstanding dues and would be given full amnesty from prosecution. Interest, fine, or penalty, if any, would be waived. The scheme ended on January 15.

The government, however, has been cautious while budgeting for its Goods and Services Tax (GST) collections. It has reduced the target in the RE for 2019-20 to Rs 6.12 lakh crore from Rs 6.63 lakh crore in BE.

For the Central government to achieve its share in GST, collections are required to grow at a pace of 6.6 percent in the last quarter of FY2019-20. The Budget assumes a target of 5.3 percent, close to the growth rate of 4.8 percent seen in the first nine months of the current fiscal.

The real picture of the government's revenue situation would become clearer when the provisional data for the January to March quarter would be released a few months from now.

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First Published on Feb 14, 2020 06:57 pm
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