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Thursday, May 28, 2020

Trimming expectations

Achieving the revised revenue target appears difficult. The government needs to make more realistic projections.

By: Editorial | Updated: March 3, 2020 12:18:37 pm
Union budget 2020, Nirmala Sitharaman, India gross tax revenue target, Indian economy, India GDP If actual collections end up falling short of the revised estimates, the government will have to further cut its expenditure or postpone spending.

In the recent Union budget, the Centre had lowered its gross tax revenue target for 2019-20 by around Rs 3 lakh crore. But going by current trends, achieving even the revised revenue target will prove to be difficult. Tax collections for the first 10 months (April-January) of the current year imply that the Centre would need to collect almost 30 per cent of its full year target in the remaining two months in order to meet the revised target. Though government revenues do rise sharply towards the end of the year, with the economy slowing down considerably — nominal GDP is expected to grow only at 7.5 per cent — achieving the target will be challenging. If actual collections end up falling short of the revised estimates, the government will have to further cut its expenditure or postpone spending. Lower collections this year will also make it harder to achieve the target for the coming fiscal year.

The Centre’s gross tax revenues have, worryingly, contracted by 2 per cent in the first 10 months of the current fiscal year. While direct tax collections have fallen by 4.9 per cent, indirect taxes have been almost flat. Under direct taxes, the pressure is now more on the personal income tax front. The government hopes to collect around Rs 2 lakh crore in the last two months — around 57 per cent higher than what was collected over the same period last year. This is a tall order. While it may be banking on the Vivad Se Vishwas scheme to shore up collections, to what extent it can help reduce the shortfall is uncertain. On indirect taxes, though, the recent growth in GST collections is likely to reduce the extent of the shortfall. The Centre needs to collect roughly Rs 58,225 crore in March to meet the budgeted Central GST target. However, if the recent rise in GST collections is because of blockage of input credit, then actual collections may well be lower once credit is utilised.

Meeting the non-tax and disinvestment target this year may also be difficult. There continues to be uncertainty regarding the magnitude and timing of payments by telecom operators towards settling their dues, and, as against a disinvestment target of Rs 65,000 crore, actual collections currently stand at Rs 34,845 crore. This divergence between revenue expectations and actual collections has now become a recurrent feature of India’s budgets. Rather than constantly revising its estimates, the government must be more realistic in its revenue projections, taking into account the prevailing economic scenario.

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