With the first quarter gross tax mop-up reaching Rs 5.6 lakh crore, Icra Ratings on Friday said the government is set to exceed the budgeted tax collection target of Rs 22.2 lakh crore for 2021-22, led by indirect taxes.
The government has budgeted a modest 9.5 per cent growth in tax collections at Rs 22.2 lakh crore for FY22, over FY21 collections of Rs 20.2 lakh crore. However, despite the second wave of the pandemic, the April-June quarter tax collections rose to Rs 5.6 lakh crore, which is 39 per cent higher than Q1 of FY20. As stated differently, this is 107 per cent more than Q1 of FY21 and 25.1 per cent of the full-year target, according to an analysis by Icra.
The first quarter is traditionally moderate for tax collection, as the economic activity remains tepid. The revenue department is yet to officially release tax collection data, but the finance ministry informed the Lok Sabha on July 19 that Q1 tax revenue mop-up reached Rs 5.6 lakh crore. The ministry also informed the House that the excise duty on petrol and diesel fetched Rs 94,181 crore in Q1.
Given that tax inflows in Q1 were 39 per cent higher than the pre-COVID level (of Q1 of FY20), we expect the gross tax revenue to surpass FY22 budget estimate of Rs 22.2 lakh crore. Growth in tax mop-up is led by indirect taxes, primarily taxes on petroleum products, Icra chief economist Aditi Nayar said.
According to her, Q1 collections at Rs 5.6 trillion is 107 per cent higher than Rs 2.7 lakh crore in Q1 of FY21, when the whole country was under lockdown last year.
But more meaningfully, this is a full 39 per cent more than the pre-COVID level in Q1 of FY20, she said. She further said while corporation tax, personal income tax and Central GST receipts in Q1 stood at 21-22 per cent of the budget estimates, excise and customs collections already crossed 30 per cent of the budget estimate, boosted by the high taxes on fuels as well as a relatively faster recovery in international trade.
Additionally, GST compensation cess mop-up touched Rs 24,600 crore in Q1 or nearly 25 per cent of the budget estimate. This also suggests that the full-year collections may exceed the budget estimate of Rs 1 lakh crore, helping ease the concerns over GST compensations to the states through the grants route, Nayar said.
Given these numbers, our calculations suggest that the FY22 budget estimate for gross tax revenue of Rs 22.2 lakh crore can easily be crossed, even if there is a 5 per cent contraction in the next three quarters, which appears unlikely despite the lingering uncertainty on growth.
In absolute terms, even if gross tax collection in the next three quarters falls short of Q1 numbers by a considerable Rs 95,000 crore, the budgetary target for the full year will not be missed, Nayar noted. The healthy Q1 tax mop-up suggests that there is some space to reduce the cesses on petrol and diesel, which will boost consumption sentiment on one hand and ease the inflationary pressures on the other, she said, adding this would allow monetary policy normalisation to be postponed, in a bid to continue to support economic activity in an uncertain growth environment.
The government in April 2020 hiked the excise duty on petrol from Rs 19.98 a litre to Rs 32.9 and on diesel to Rs 31.8 from Rs 15.83 a litre to recoup the gains arising from international oil prices plunging to multi-year lows as pandemic gulped the demand.
This led to tax collections from fuels jumping to Rs 3.35 lakh crore in FY21, from Rs 1.78 lakh crore in FY20.
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