New Delhi, Feb. 28
It is the booming services sector that has come to the Finance Ministry's rescue by arresting the trend of declining tax-GDP ratio in the post-reforms period.
After falling from 10.12 per cent in 1990-91 to 8.95 in 2000-01, the ratio of the Centre's gross tax revenues to gross domestic product (GDP) has recovered to 10.4 per cent in 2005-06 and is budgeted to hit a record 11.3 per cent in the coming fiscal.
And this turnaround has been due to increasing focus on services. Till 1994-95, there was no tax on services at all. But in 2005-06, the Centre has mopped up Rs 23,000 crore as per revised estimates, which is higher than the Rs 17,500 crore that was budgeted for.
For 2006-07, the target has been set at Rs 34,500 crore, reflecting the huge revenue potential of this `young tax' that is being tapped.
The Centre has used a twin strategy to maximise revenues from the services sector, which, as the Finance Minister, Mr P. Chidambaram, noted, contributes 54 per cent of the country's GDP.
The first is to increase the rate of tax from 5 per cent to 8 per cent in 2003-04, 10 per cent in 2004-05 and 12 per cent in the 2006-07 Budget.
The second is to expand the coverage, which after today's proposals would extend to 96 services.
While services are yielding more-than-expected revenue buoyancy, the same cannot be said about excise, which is linked to the manufacturing sector.
The 2005-06 Budget had targeted Rs 121,533 crore of excise revenues, whereas the revised estimates reveal a shortfall of Rs 9,533 crore.
Mr Chidambaram has chosen to be conservative this time, setting a target of Rs 119,000 crore for 2006-07.
Customs has sprung a surprise, with the revised estimates, at Rs 64,215 crore, turning out to be much higher than the budgeted revenue of Rs 53,182 crore for 2005-06.