Duty hike estimated to fetch ₹1.1-lakh crore this fiscal, estimates Nomura

Duty revision on crude, petro products and gold is likely to bring in more than ₹1.1-lakh crore to government exchequer, Nomura has estimated. This is more than what the Centre will have to forego on account of excise duty cut on petrol and diesel in May.

“The measures are non-inflationary, but we do not expect any improvement on the current account. While we may see a positive impact on the centre’s fiscal finances by ₹1.1-lakh crore (0.4 per cent of GDP), we also consider the uncertainty of whether these taxes will sustain throughout the year. Hence, we leave our forecast of a fiscal slip in FY23 (to 6.8 per cent of GDP) unchanged, although we acknowledge an upside risk,” Nomura said in a note prepared by Sonal Varma and Aurodeep Nandi.

On Friday, the government hiked Basic Custom Duty (BCD) on gold to 12.5 per cent from 7.5 per cent. While, Agriculture Infrastructure Development Cess of 2.5 per cent will continue, surcharge on BCD removed taking total duty to 15 per cent, 4.25 per cent more than pervious one. It raised special additional excise duty/Cesses on exports of petrol and diesel at ₹6/litre and ₹13/litre, respectively. Also, windfall gain tax by way of cess at ₹23,250 per tonne on domestically produced crude oil was imposed. 

Nomura said that these measures are largely non-inflationary and are meant to ease pressure on the twin current account and fiscal deficits. It expects increase in import duty could lead to just 0.05 per cent in headline retail inflation based on consumer price index (CPI). “Export taxes on petroleum products could lower oil product exports, more than offsetting any benefit (from lower gold imports) on the current account. We maintain our forecast that the current account deficit will widen to 3.3 per cent of GDP in FY23, from 1.2 per cent in FY22,” it said.

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Earlier in May, the government lowered the Central Excise Duty on petrol by ₹8 per litre and on diesel by ₹6 which has a revenue implication of ₹1-lakh crore every year. Also, total subsidy payout on fertiliser was raised to over ₹2-lakh crore against a budgeted estimate of around ₹1-lakh crore. Along with all some other items, it has been apprehended that Centre’s fiscal deficit will further widen from budget estimate of 6.4 per cent. Nomura had raised fiscal deficit projection to 6.8 per cent of GDP from budget estimate of 6.4 per cent.

Now, the agency says announcements made on Friday could narrow the fiscal slip to ₹1.1-lakh crore from the earlier estimate of ₹2.2-lakh crore.  However, “there is uncertainty on how long these new taxes will continue. The Finance Minister mentioned that the government would assess the oil levy impact every fortnight. In addition, we now expect a recession across major global economies which will also weaken India’s growth outlook and weigh on tax collections later in the year. We expect GDP growth at 7 per cent y-o-y in FY23 and at 5.5 per cent in FY24,” it said. 

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