Macro Economy

Indirect taxes saves the day for govt, transforms fiscal landscape

Our Bureau New Delhi | Updated on January 20, 2018 Published on February 29, 2016

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tax-table

Govt scales down direct taxes target for 2015-16 by ₹45,974 cr

Indirect taxes have clearly helped the Modi government pass the Budget test with flying colours.

The strategy of not passing the gains from slump in global oil prices to domestic consumers of petrol and diesel has paid rich dividends to the Centre’s fiscal picture for 2015-16. Excise duty on petrol and diesel were hiked at least seven times this fiscal.

Given the huge jump in tax mop-up targets for 2016-17, the Centre is unlikely to scale back excise duty hikes in petroleum products anytime soon.

Most of the additional revenue mop-up on the excise front has been utilised to fund social sector schemes including MGNREGA.

Despite an expected ₹45,974 crore shortfall in direct taxes collections in 2015-16, the Centre is all set to surpass the Budget estimate of overall gross tax revenues of ₹14.5 lakh crore, thanks largely to the likely 29 per cent jump in indirect taxes.

The revised estimates for all three taxes – excise, customs and service tax – have been upped in 2015-16 as compared to actual collections in 2014-15.

Targets up

Not only that, encouraged by the strong show in indirect taxes this fiscal, Finance Minister Arun Jaitley has now budgeted an 11 per cent increase in indirect taxes for 2016-17.

This will not be a tough task if the government retains excise duties on petrol and diesel at the current level or increase it in the coming days.

Even for direct taxes, the Centre has budgeted 12.64 per cent increase for 2016-17. This is a big jump over the 8.25 per cent increase to be realised in 2015-16.

Deficit target

The Centre is clearly betting big on tax buoyancy to shore up its revenues and thereby help maintain fiscal deficit target of 3.5 per cent of GDP for 2016-17. Despite global and domestic headwinds, Jaitley has chosen not to deviate from the earlier set fiscal deficit target of 3.5 per cent for 2016-17.

For 2016-17, the Budget has forecast nominal GDP growth of 11 per cent. This is lower than the 11.5 per cent projected in last year’s Budget for 2015-16. Actual nominal GDP growth in 2015-16 has been only about 8.6 per cent.

Reactions

Reacting to the budget, Anis Chakravarty, Partner and Lead Economist, Deloitte India, said that a very important aspect of the Union Budget has been the reaffirmation of the fiscal responsibility and budget management (FRBM) targets for the next year.

“What is interesting is that the target has been maintained even when no growth is projected in the tax to GDP ratio which is expected to be 10.8%, which is at the same level as the RE for FY 2015-16. As can be read from the Fiscal policy statement, the FM seems to be banking much more on non-tax receipts, primary of which are the dividends, disinvestment and spectrum sale. All of these are dependent on robust implementation of policy and it will certainly be a tightrope walk”, Chakravarty told Business Line.

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Published on February 29, 2016
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