Interim Budget 2019: Personal taxes buoyant for NDA, indirect taxes a worry

Over the past five years, the central government’s gross tax revenues have grown at a much higher pace than nominal GDP (gross domestic product) growth. But while personal income tax collections have almost doubled during this period, indirect tax collections have suffered of late, with compliance falling as the country shifted to the goods and services tax (GST) regime. On the other hand, non-tax revenue growth has barely kept up pace with nominal GDP growth.


At the aggregate level, the central government’s gross tax revenues are budgeted to rise to Rs 22.7 trillion (12.1 per cent of GDP) at the end of financial year 2018-19, or FY19, up from Rs 12.4 trillion (10 per cent of GDP) in FY15, implying a growth of 82 per cent over this period. By comparison, over the same period nominal GDP grew by 51 per cent, implying that tax collections grew at a much faster pace than the economy.


Under the broad rubric of gross tax revenue, direct tax collections have been pegged to rise from Rs 6.94 trillion (5.6 per cent of GDP) in FY15 to Rs 11.5 trillion (6.1 per cent of GDP) in FY19. But a closer look reveals that much of this spurt is on account of personal income tax collections which have almost doubled over this period, rising to Rs 5.29 trillion in FY19, up from Rs 2.65 trillion in FY15. By comparison, growth in corporate tax collections has been just shy of 50 per cent, rising from Rs 4.29 trillion to Rs 6.21 trillion over this period.


This year too, direct tax collections have grown by a healthy 16.4 per cent till November, as against a budgeted target of 14.4 per cent, shows data from Controller General of Accounts. By comparison, nominal GDP is expected to grow at 12.3 per cent according to the central statistics office (CSO).


However, indirect tax collections continue to pose a challenge with the shift to the GST regime, leading to a fall in compliance levels.


So far this year, GST collections have been running well behind the monthly run rate. As opposed to a monthly target of Rs 1.04 trillion, collections averaged only Rs 89,600 crore in the first nine months of the financial year, estimates a report by Kotak Institutional Equities. The shortfall implies that collections have to average Rs 1.5 trillion per month for the remaining three months of FY19 to meet the budgeted target.


This seems difficult to achieve. The report pegs the GST revenue shortfall at Rs 1 trillion for 2018-19, which translates to a shortfall of Rs 58,000 crore for the Centre. The remaining portion will have to be borne by the states.


The Centre’s indirect tax collections have been budgeted to rise from 4.4 per cent of GDP in FY15 to 5.9 per cent of GDP in FY19 (for FY19 unallocated IGST of Rs 50,000 crore and compensation cess of Rs 90,000 crore is taken into calculations).


Both non-tax revenue and disinvestment proceeds also remain a source of concern.


In the current financial year, as against a budgeted target of Rs 2.45 trillion, so far non-tax revenue collections add up to Rs 1.38 trillion. While this is much higher than last year’s, even if the budgeted target is met, the Centre’s non-tax revenue collections would have dipped from 1.6 per cent of GDP in 2014-15 to 1.3 per cent of GDP in 2018-19.


A similar trend is observed in non-debt capital receipts as well. At the end of December, disinvestment proceeds stood at Rs 35,134 crore, as against the target of Rs 80,000 crore. Even if the disinvestment target is met, it will only account for 0.5 per cent of GDP, only marginally higher than 0.4 per cent in 2014-15.

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