Tax relief unlikely as government misses tax target by ₹2 lakh crore

The tax collection shortfall this fiscal could be ₹2 lakh crore, making it difficult for the government to make any substantial reduction in personal income tax rates.

Sources said income and corporate tax collections were likely to miss the FY2020 targets by ₹1.5 lakh crore while indirect taxes may fall short by about ₹50,000 crore on drop in the Goods and Services Tax (GST). The GST drop is attributed to a sluggish economy.

Earlier, The Federal had reported that India’s corporate and income tax collection for the current year would fall for the first time in at least two decades.

The Union government’s direct tax target for the year ending March 31 is ₹13.5 lakh crore – a 17% increase over the prior fiscal year. The tax department had managed to collect only ₹7.3 lakh crore as of January 23, more than 5.5% below the amount collected at the same period last year.

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The expectation was that Finance Minister Nirmala Sitharaman would lower the burden on the individual taxpayer. The FM had in September 2019 cut corporate tax rates to its lowest to boost economic growth.

Economists now feel that similar sops would be difficult to come by as the economy is in the slowest growth in 11 years, at 5%.

The industry had not made investments as expected due to the weak demand in a sluggish economy. The government’s desperate bid to pump in more money into the system for liquidity also seemed to have faltered with disinvestment targets being missed by a wide margin.

Corporate tax burden

The exchequer witnessed a shortfall of Rs.1.45 lakh crore as the government slashed corporate tax rates up to 10 percentage points, the biggest reduction in 28 years. Base corporate tax for existing companies was reduced to 22% from 30%, and to 15% from 25% for new manufacturing firms incorporated after October 1, 2019, and starting operations before March 31, 2023. Besides, the government withdrew the enhanced surcharge on long- and short-term capital gains for FPIs as well as domestic portfolio investors.

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This resulted in revenue implication of ₹1,400 crore. Since August, the government announced other measures having some revenue implication in its effort to stimulate the economy.

There are constraints not only on direct tax side but indirect tax collection is also under stress due to slowdown, sources said, adding, the moderation in demand will surely have bearing on the Goods and Services Tax (GST) collections and customs too.

The shortfall on the indirect tax side would be at least ₹50,000 crore by any conservative estimate, sources added. Several experts including former Finance Secretary S.C. Garg indicated tax shortfall between ₹2 lakh and 2.5 lakh crore during the current fiscal.

“Overall, there is likely to be shortfall of ₹3.5 to 3.75 lakh crore in gross tax collections of the Centre. Expecting that the Centre could revise transfers to the states out of the central taxes (about 32%  of shortfall), the net taxes to the Centre are likely to be short by ₹2.5 lakh crore or 1.2% of GDP,” he had said in a recent blog.

Direct tax revenues – Corporation Income Tax (CIT) and Personal Income Tax (PIT) – together as per the Budget Estimate has been pegged at ₹13.35 lakh crore, which is 16% higher than the Budget estimate (₹11.50 lakh crore) and 11.25% higher than the revised estimate (₹12 lakh crore).

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Of this CIT is expected to contribute ₹7.66 lakh crore and PIT ₹5.69 lakh crore in 2019-20.

With regard to indirect tax, total amount budgeted as receipts for GST is ₹6.63 lakh crore for the current fiscal.

Total customs revenues were budgeted to bring in gross receipts of ₹1.56 lakh crore while excise expected to garner ₹3 lakh crore during 2019-20.

The government has budgeted gross tax revenues of the Centre at ₹24.59 lakh crore. Setting aside ₹8.09 lakh crore as the share of the states, the budgeted net tax revenues to the Centre has been kept at ₹16.50 lakh crore. This was ₹3.13 lakh crore higher than the provisional/actual net tax revenues of ₹13.37 lakh crore collected in 2018-19, an increase of 23.4%.