With a slowing economy eating into its revenue collections, the government may retain the tax on the ‘super rich’ for one more year.
The proposal has been mooted by a cash-strapped finance ministry that has few sources for additional revenue generation to support any expansion in its spending plans.
“A final decision will be taken in consultation with the finance minister. But in all likelihood Union Budget next month will not roll back the tax,” said a senior government official.
The tax on the ‘super rich’ was announced in Budget FY14 in the form of a 10 per cent surcharge on individuals earning over Rs 1 crore annually. Additionally, a 5 per cent surcharge on domestic companies with total annual income of more than Rs 1 crore but less than Rs 10 crore was also levied, which too is likely to continue for another year.
Though the two levies were expected to continue for a period of one year only, they were not done away in the interim Budget but former finance minister P Chidambaram had said that the full Budget for FY15 will be the right occasion to revisit the tax.
But the finance ministry now is of the view that the levy can continue for another year as it impacts a miniscule number of taxpayers — less than 45,000 individuals but is estimated to have raised nearly Rs 8,000 crore in taxes.
“Tax collections were lower than expected last fiscal and we do not have much fiscal space for any concessions this year. In fact, we may have to look for additional sources for revenue,” said the official.
According to interim Budget documents, gross tax revenue is estimated to increase by 19 per cent to 10.7 per cent of the GDP in FY15 as against 10.2 per cent of the GDP in the revised estimates for last fiscal. But the target may be too ambitious given that the economy grew at less than five per cent for two straight years while whole sale price index based inflation was 5.6 per cent in April. Further, tax collections in FY14 too were lower than estimate — a fact that was underlined as a challenge for the new government by finance minister Arun Jaitley in a post on Facebook on Sunday. “Tax collections are at 10.1 per cent of the GDP compared to the initial Budget Estimates of 10.9 per cent,” he had noted.
According to CGA figures, the tax mop-up in FY14 was Rs 8,16,046 crore or 97.6 per cent of the revised estimate of Rs 8,36,026 crore.