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The government’s aim to restrict the fiscal deficit to 5.8 per cent of the Gross Domestic Product (GDP) as against 5.9 per cent budgeted earlier for the financial year and the push to restrict the fiscal deficit target to below 4.5 per cent by 2025-26 rides on the back of a strong buoyancy in tax revenues.
Direct tax revenues have shown a sharp surge, with income tax seen overshooting the Budget estimate for this financial year by 13.5 per cent and Securities Transaction Tax (STT) revenue seen exceeding budget estimate by 15.8 per cent.
For the next financial year, direct tax collections, which include income tax and corporate tax, are estimated to rise 13.1 per cent to Rs 21.99 lakh crore. Direct tax revenues are estimated to grow 17.2 per cent year-on-year to Rs 19.45 lakh crore in the current financial year 2023-24.
The income tax collections in 2023-24 have shown a sharp pickup and are expected to exceed the Budget estimate by Rs 1.2 lakh crore, while corporate tax collections have been maintained at the Budget estimate level of Rs 9.23 lakh crore. With this, income tax revenues are seen exceeding corporate tax collections, even though they had been budgeted at a lower level than corporate tax revenue in the Budget estimates for 2023-24.
Securities Transaction Tax, which is levied on traded securities on bourses, is estimated to increase to Rs 32,000 crore in the revised estimates of 2023-24, an increase of 27.6 per cent from the actual revenue in 2022-23. For 2024-25, STT revenues are estimated to rise to Rs 36,000 crore.
The government’s gross tax revenue is estimated to grow 11.5 per cent to Rs 38.31 lakh crore in the next financial year.
The Centre’s net tax revenues are estimated to grow by nearly 12 per cent to Rs 26.02 lakh crore in 2024-25. This compares with a rise of 10.8 per cent in the revised estimates for the ongoing financial year 2023-24 over the actual revenue in 2022-23. The growth rate for tax revenues estimated for 2024-25 at nearly 12 per cent is much higher than the 10.5 per cent nominal GDP growth assumed for Budget arithmetic for 2024-25.
The strong growth in tax revenues reflects the high tax buoyancy, which works out to be 1.2 in the revised estimates for financial year 2023-24 as against 1.0 in FY23. For 2024-25, the tax buoyancy is seen at 1.1.
“Over the past few years, the government’s revenue collections, especially tax collections, have turned out to be better than budgeted. Even for FY25, the union budget is expecting the tax collections to grow 11.9 per cent YoY (FY24BE: 11.6 per cent). The budgeted tax revenue buoyancy for FY24 was 1.07x, but as per FY24 revised estimates, it came in at 1.19x. Therefore, Ind-Ra believes that the target of achieving a fiscal deficit of 5.1% of GDP in FY25, although challenging, is possible as the government over the past few years has surprisingly reported a better fiscal deficit/GDP ratio than budgeted. The conservative revenue estimates can take care of any unforeseen expenditure or slippage in disinvestments in FY25,” India Ratings and Research said in a note.
On the indirect taxes side, Central Goods and Services Tax (CGST) collections are estimated to grow 13 per cent to Rs 9.18 lakh crore in 2024-25. Overall, the indirect tax collections, which include customs, excise duties and GST (including compensation cess), are expected to yield Rs 16.22 lakh crore to the government in 2024-25.
In the current financial year, the revised estimate for customs and excise duty collections have been lowered to Rs 2.19 lakh crore and Rs 3.08 lakh crore, respectively, while GST collections (including compensation cess) are estimated at the budgeted level of Rs 9.57 lakh crore.
