The government’s fiscal math could come in for increasing scrutiny in the coming months as tax revenue growth is progressively turning out to be far slower than the required run rate for direct taxes, even as Goods and Services Tax (GST) collections seem to be growing higher than the targeted rate.
Gross GST collections have recorded a growth rate of 6.8 per cent in April-July as against the required rate of 3.6 per cent, a higher rise that could be primarily attributed to a sharply lower growth rate assumed for Budget target as against the revised estimate for previous fiscal. But when it comes to direct taxes, a widening gap in estimates is evident — with only 9.7 per cent growth recorded in April-June as against the annual required growth rate of 18.6 per cent.
Also, the gross tax revenue collections are now required to grow at a run rate of 22.3 per cent and net tax revenue collections are required to grow at a run rate of 29.5 per cent in the remaining nine months of this financial year, the actual figures of revenue collections released by the Controller General of Accounts (CGA) showed.
Direct tax collections in the first quarter of this financial year have been recorded at Rs 1,67,567 crore, only 9.7 per cent higher than Rs 1,52,724 crore in the corresponding period in the previous financial year. “The targets are indeed looking steep as a single-digit growth has been recorded for April-July as well,” a senior government official said.While the overall gross GST collections seem to be moving closer to the target, the actual figures released by CGA for the April-June quarter do not paint an optimistic picture for Centre’s GST revenue. GST revenue collections of the Centre for April-June contracted 5.9 per cent year-on-year to Rs 1.53 lakh crore, dragging the overall growth rate of the central government’s tax collections to 1.4 per cent. The Central government’s tax collections were recorded at about Rs 4 lakh crore in April-June.
For April-July though, the gross GST collections, which include revenues for both states and Centre have been recorded at Rs 4.16 lakh crore, 6.8 per cent higher than Rs 3.89 lakh crore recorded in the same period last year.
The average monthly required revenue target for GST for the current financial year stands at about Rs 99,112 crore, only 3.6 per cent higher than the monthly required average of Rs 95,650 crore as per 2018-19 revised estimates.
The Central government’s fiscal deficit has already hit 61.4 per cent of the full year target at Rs 4.32 lakh crore in April-June, as per CGA data. In the corresponding period last year, the fiscal deficit amounted to 68.7 per cent of the full-year target. The Union Budget for 2019-20 has pegged the fiscal deficit at Rs 7.038 lakh crore or 3.3 per cent of the GDP, marginally lower than the interim budget’s estimate of Rs 7.040 lakh crore.
Economists have already started to raise concerns about meeting the fiscal targets, saying that expenditure cuts might be required if revenue targets are missed.
“The realisation of the target for direct taxes and GST collections, and dividends and surplus from the RBI, nationalised banks and financial institutions and PSEs, will be crucial to prevent a revenue slippage in FY2020. Moreover, the speed with which the disinvestment programme kicks off, as well as the interest shown by potential buyers in the PSUs being offered for strategic disinvestment, will be critical. At present, we can’t rule out that expenditure cuts may be required to prevent a fiscal slippage, if the revenue targets are missed,” Aditi Nayar, principal economist, ICRA said.