Economy

Budget 2020-21: Are the tax revenue targets too ambitious?

Surabhi Mumbai | Updated on February 04, 2020 Published on February 04, 2020

Muted economic growth, corporate tax rate cut may make it a tough battle, say analysts

Is Budget 2020-21 too ambitious with its tax collection targets, especially amid the economic slowdown and cut in corporate tax rates?

The tax targets seem to have raised eyebrows among analysts. Even a quick look at the previous Budgets shows that the actual collections in at least the last two years have been lower than the estimates.

This could mean more reliance on non-tax revenues, such as disinvestment proceeds, for maintaining the fiscal deficit at the targeted at 3.5 per cent of GDP for FY21.

Gross tax revenue

Budget 2020-21 has pegged the gross tax revenue (GTR) at ₹24,23,020 crore, which is slightly lower than the ₹24,61,194.93-crore Budget Estimate (BE) for 2019-20. However, it marks a near 12 per cent increase over the Revised Estimate (RE) of ₹21,63,423 crore for this fiscal.

“GTR has been pegged at ₹21,63,423 crore in RE 2019-20, which reflects a decrease of ₹2,97,772 crore from BE 2019-20. The reasons for this shortfall are the reductions in corporate tax,” the Budget document said. In 2019-20, the document notes, GTR slowed down due to lesser-than-anticipated GST collections and a reduction in corporate tax rates. GDP growth is estimated to recover to 6-6.5 per cent in 2020-21 from the estimated 5 per cent this fiscal.

In 2018-19 as well, the actual GTR receipts, at ₹20,80,465.43 crore, were lower than what was anticipated in the BE and RE. In 2018-19, GTR in the BE was ₹22,71,241.56 crore while in the RE, it was pegged at ₹22,48,175.2 crore. Similarly, in 2017-18, the actual GTR at ₹19,19,008.71 crore was lower than the RE of ₹19,46,119.15 crore.

Tax revenue buoyancy

Analysts have also pointed out that the nominal GDP growth of 10 per cent in this Budget could have downside risks, given the subdued environment both domestically and externally. CRISIL has forecast nominal GDP growth at 9.5 per cent next fiscal. “As opposed to a gross tax revenue buoyancy of 0.5 achieved in fiscal 2020, the government has budgeted a buoyancy of 1.2 for FY21 (also higher than the last 10-year average of 1.0), which could be challenging to achieve in an environment of subdued growth,” CRISIL noted.

A research note by Abheek Barua, Chief Economist, HDFC Bank, also noted that given the muted growth environment, the assumptions on tax collections for next fiscal look somewhat stretched. And the GTR projections seem optimistic given the current growth slowdown.

“Direct tax collections are budgeted to grow 12 per cent in 2020-21, compared to 4 per cent this fiscal This is despite the ₹4,000-crore loss in revenue expected from the reduction in income-tax cuts,” the report said.

It also pointed out that the Budget has pegged GST collections at ₹6.9-lakh crore. “Our calculations show that a monthly run rate of ₹1.06-lakh crore is required to meet the target,” it added.

Meanwhile, the proceeds from PSU disinvestments, including that of LIC, is pegged at ₹2.1-lakh crore next fiscal, as compared to the RE of ₹65,000 crore this fiscal.

Table:

Gross tax revenue

Centre’s net tax revenue

2020-21 (BE)

24,23,020

16,35,909.13

2019-20 (BE)

24,61,194.93

16,49,581.91

2019-20 (RE)

21,63,423

15,04,586.93

2018-19 (BE)

22,71,241.56

14,80,649.04

2018-19 (RE)

22,48,175.2

14,84,406.05

2018-19 (Actuals)

20,80,465.43

13,17,211.12

2017-18 (BE)

19,11,579.46

12,27,014.01

2017-18 (RE)

19,46,119.15

12,69,453.86

2017-18 (Actuals)

19,19,008.71

12,42,488.3

All figures in ₹crore

Source: Budget documents

Published on February 04, 2020
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