Tax Projection for FY20 sees massive cut

The coming financial year will see the Indian government lose ₹1-1.5 trillion in potential revenue. Economic slowdown and corporate tax reduction are the major reasons for this downward trend. This is the second time that the tax projection for the next fiscal year is being changed since the interim budget in last year. The total revenue was initially projected to be ₹25.5 trillion with a growth rate of 22.5% over the previous year. Economic growth is expected to fall to a 11-year low of 5% in 2029-20. An overall demand slowdown can also be seen in the goods and service sector. Tax collection from direct sources has seen an extremely low growth rate of 0.7% till December 15^th.

The current projection has come under scrutiny by the International Monetary Fund (IMF) over the high projected growth despite the apparent slump. The target was revised by ₹90,000 crore in the July Budget, it still required a growth of 18.26% more than double of the 8.3% seen in 2018-19. The target last year despite being cut had the highest shortfall since 2014. Madan Sabnavis, Chief Economist at ‘Care Ratings’ said “Ideally, the tax target for the fiscal year should be cut by ₹1 trillion to 1.5 trillion in the upcoming budget. Ironically the demonetisation year was the only year in which collection ₹17.1 trillion exceeded the budget projection of ₹16.3 million.

The tax department in In FY19, despite asking for a reduced revision was tasked with acquiring an additional ₹50,000 crore. This was to be spent on farmer-related welfare schemes. Central GST collections, part of the indirect tax fell 9% short of the revised collection target of ₹4.5 trillion. Officials attributed this to rate rationalisation on a variety of items. Tax buoyancy is estimated to be at 1.44 this year. In layman’s terms if nominal GDP expands by 10%, direct tax collection will grow by 14.4%, which seems to be impossible. FM Nirmala Sitharaman had cut tax rate of companies from 25-30 to 22% for existing companies to battle the economic slowdown. This takes away a huge chunk of any revenue growth.

Revenue Secretary Ajay Bhushan has asked to tax officials of the country to step up efforts to achieve the set tax targets. These taxmen have been given a target of ₹13.35 trillion for direct taxes. They were told that the corporate tax cut of ₹1.45 trillion should not be used as an excuse for lower collections. How these officials are supposed to conjure a trillion and a half rupees is anyone’s guess.