A 12% growth in tax collections next fiscal may look ambitious to some but for Revenue Secretary Ajay Bhushan Pandey it is achievable in an economy that is projected to clock a 10% nominal GDP growth.
The economy slowing down to its slowest growth in 11 years together with a cut in corporate tax rates led to the government missing its tax collection target by a wide margin in the current fiscal. The tax shortfall also led to slipping on fiscal deficit target for the third year in a row.
In an interview to PTI, Mr. Pandey exuded confidence of meeting the tax collection target of ₹24.23 lakh crore for 2020-21.
“In 2020-21 the nominal growth that has been projected is 10%. So on a 10% (GDP) growth, getting a 12% growth in tax revenue is achievable,” Mr. Pandey told PTI.
The 2020-21 Budget has pegged gross tax revenues for 2020-21 at ₹24.23 lakh crore, up 12% from ₹21.63 lakh crore in the current fiscal.
Around ₹6.38 lakh crore is expected to come from personal income tax in 2020-21, a 14.13% increase over ₹5.59 lakh crore earned in 2019-20.
Besides, corporate tax revenue is budgeted to increase by 11.63% to ₹6.81 lakh crore in 2020-21, from ₹6.10 lakh crore in current fiscal.
For current fiscal, the government has revised downwards the tax collection projections from budgeted ₹24.61 lakh crore to ₹21.63 lakh crore in the revised estimates.
Mr. Pandey said the revenue growth budgeted for current fiscal was calculated assuming a 12% nominal GDP growth. However, the nominal GDP growth came in at 7.5%.
He said in the current fiscal, the gross tax revenue is 4% higher than ₹20.80 lakh crore collected in 2018-19 fiscal. However, the government had estimated an 11% gross tax revenue growth in 2019-20.
Explaining further, Mr. Pandey said, “This year we have shown a tax revenue growth of 4%. 7% growth we had to forego on account of corporate tax (cut). So 4% (growth) means actually 11% achievement. On 7.5% nominal growth if you are achieving 11% (tax revenue) growth, we can’t say that this is unrealistic”.
In September 2019, the government announced a cut in base corporate tax for existing companies to 22% from current 30%; and for new manufacturing firms, incorporated after October 1, 2019 and starting operations before March 31, 2023, to 15% from current 25%.
The effective tax rate for existing units, after considering surcharges and cess such as Swachh Bharat cess and education cess – which are levied on top of the income and corporate tax rates, will be 25.17% as compared to 34.94% now. For new units, it will be 17.01% as against 29.12% now.
The new tax structure cost ₹1.45 lakh crore in revenue annually to the exchequer.
Indian economy is projected to grow at 5% in the current fiscal — its slowest pace in 11 years. Fiscal deficit in 2019-20 is estimated to come in at 3.8% as against 3.3% estimated in Budget.