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ICRA expects the gross tax revenues of the Government of India (GoI) to surpass the FY2022 budget estimate (BE), led by indirect taxes.
The credit rating agency based its projection on the tax inflows of the GoI in Q1FY22 being nearly 40 per cent higher than the pre-Covid level of Q1FY20.
ICRA, in a note, stated that the gross tax revenue inflows of the GoI in Q1FY22 had already reached a quarter of the BE for the full year, despite the impact of the second wave of Covid-19 on economic activity.
Aditi Nayar, Chief Economist, ICRA, said: “While corporation tax, personal income tax and CGST (Central Goods & Service Tax) receipts in Q1FY22 stood at 21-22 per cent of their FY22 BE, Union excise duty and customs duty collections had already crossed a considerable 30 per cent of the respective budgeted targets, benefiting from the cesses imposed on fuels as well as a relatively faster recovery in international trade, respectively.”
Additionally, GST compensation cess inflows had aggregated to ₹24,600 crore in Q1FY22, nearly 25 per cent of the FY22 BE.
This suggests that the full year collections may exceed the FY22 BE of ₹1 lakh crore, which will ease concerns regarding the flows of GST compensation to the State governments through the grants route, opined the agency.
Tax collections
Based on data on the GoI’s tax collections for Q1FY22 made available in a reply (dated July 19, 2021) to an un-starred question of the Lok Sabha, ICRA said the major tax revenue streams of the GoI aggregated to around ₹5.6 lakh crore in Q1FY22, which is 25.1 per cent of the FY22 BE for gross tax revenues of ₹22.2 lakh crore.
Nayar emphasised that the tax inflows of the GoI of ₹5.6 lakh crore in April-June 2021, were a sharp (about) 107 per cent higher than the provisional receipts of ₹2.7 lakh crore in Q1FY21, which largely reflects the low base of the nation-wide lockdown.
More meaningfully, the tax inflows expanded by 39 per cent in Q1FY22, relative to the gross receipts of ₹4 lakh crore recorded in Q1FY20 — that is the pre-Covid level.
“Our calculations suggest that the FY22 BE for gross tax revenues of ₹22.2 lakh crore can be achieved, even with a 5 per cent contraction in the remainder of FY22, which appears unlikely despite the lingering uncertainty on the growth front,” Nayar said.
In absolute terms, even if the gross tax inflows in the last three quarters of FY22 fall short of the level collected in July-March FY21 by a considerable ₹95,000 crore, the budgetary target for FY22 will not be missed, she added.
Space to reduce cesses
Nayar observed that the healthy tax inflows in Q1FY22 suggest there is some space to reduce the cesses on petrol and diesel, which will both boost consumption sentiment and ease inflationary pressures. This would allow monetary policy normalisation to be postponed, in a bid to continue to support economic activity in an uncertain growth environment.
With an upside surprise in the GoI’s gross tax revenues in FY21, ICRA said the FY22 BE of ₹22.2 lakh crore is a modest 9.5 per cent higher than the provisional collections of ₹20.2 lakh crore in the previous year. This embedded growth of 9.5 per cent is substantially smaller than ICRA’s estimates of nominal GDP growth of 15-16 per cent in FY22.
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