Gross tax revenue refers to tax collection prior to devolution to states.
Thus, by getting a non-tax revenue windfall of Rs 58,000 crore — all for itself — the Centre can let go of Rs 1 trillion worth of gross tax revenue, and ease worries emanating from slow growth in income-tax and the goods and services tax (GST) to some extent.
However, states put together could potentially lose Rs 42,000 crore of share in tax revenue in this process.
“Every extra rupee given by the RBI reduces the central government’s tax requirement by Rs 1.72, as 42 per cent of tax revenue goes to states, while the entire surplus transferred by the RBI accrues only to the Centre,” a senior government official told Business Standard
The board of RBI decided to transfer Rs 1.76 trillion worth of excess profits and capital reserves to the central government for July-June 2018-19, based on recommendations made by the committee on economic capital framework headed by Bimal Jalan, former governor at the central bank. With Rs 28,000 crore transferred in the previous fiscal year as interim dividend to meet revenue shortfall back then, the Centre would get Rs 1.48 trillion in FY20.
As the Budget in July had already budgeted a dividend of Rs 90,000 crore from the RBI, the recent decision would give the government additional revenue of Rs 58,000 crore in the current fiscal year. This would exclusively belong to the Centre, lending a helping hand to achieve the fiscal deficit target.
In the Budget presented in July, Finance
Minister Nirmala Sitharaman had projected 18 per cent growth over previous year’s provisional gross tax revenue. Till now, direct tax collection has grown by 5.7 per cent (till August 15, as reported by this newspaper), and the GST collection by 6.8 per cent till July.
This poor growth in the initial months pushed up the required growth in tax revenue in the remaining nine months (July-March) to 22 per cent. Courtesy a windfall from the RBI, required growth has come down to 16 per cent.
However, another senior official involved in the Budget preparation process said it will depend on how the government decides to spend this money, and the revision, if needed, would only be made when the Revised Estimates would be calculated in January 2020.
The RBI’s transfers in FY20 would also be the highest in terms of their impact on the Centre’s expenditure. They would occupy more than 5 per cent of the total expenditure of the Centre.